Mortgage Rates Plunge for 6th Week, Hitting Two-Month Low

In some welcome news for potential homebuyers, the average mortgage rate has fallen for the sixth week in a row, hitting its lowest point since December. This could be a turning point for many who have been patiently waiting for a more favorable market. Let's dive into what this means for you and the housing market right now.

Mortgage Rates Plunge for 6th Week, Hitting Two-Month Low

For the week ending February 27, 2025, Freddie Mac's Primary Mortgage Market Survey® reported that the average rate on a 30-year fixed-rate mortgage has dropped to 6.76%. This is down from 6.85% the previous week, and significantly lower than the 6.94% we saw this time last year. It might not sound like a massive drop, but in the world of mortgages, even small fractions can make a big difference in your monthly payments and overall affordability. This latest dip marks the sixth consecutive week of declines, offering a sustained period of relief after months of rate volatility.

To give you a clearer picture, here's a quick breakdown of the key numbers from Freddie Mac's latest report:

Mortgage Type	Current Average Rate	1-Week Change	1-Year Change
30-Year Fixed-Rate Mortgage	6.76%	-0.09%	-0.18%
15-Year Fixed-Rate Mortgage	5.94%	-0.10%	-0.32%

Data Source: Freddie Mac, Primary Mortgage Market Survey® as of 02/27/2025

As you can see, it's not just the 30-year mortgage that's becoming more attractive. The 15-year fixed-rate mortgage – often favored by those looking to pay off their homes faster and save on interest in the long run – has also seen a decrease, falling to 5.94%. This is a notable drop from 6.04% the previous week and a considerable decrease from the 6.26% average rate a year ago.

Why is this Rate Drop Important?

Mortgage rates are a major driving force in home buying decisions. When rates are high, it becomes more expensive to borrow money, pushing up monthly payments and shrinking the pool of buyers who can afford to enter the market. Conversely, when rates fall, it's like a breath of fresh air for buyers. It increases their purchasing power, making homes more affordable and potentially opening doors that might have been closed just weeks or months ago.

This recent decline is particularly significant because it brings rates to their lowest level since December 2024. Think about it – the last time rates were this low, the holiday season was in full swing! While we did see a brief dip to a 2-year low last September, rates have largely been stubbornly hovering around the 7% mark for much of this year. Considering that just over four years ago, we were enjoying record low rates around 2.65%, according to reports, the current situation still feels elevated. However, any downward movement is a step in the right direction.

Is This Enough to Solve the Affordability Crisis?

Now, before you start packing your boxes and house hunting with renewed vigor, it's important to keep things in perspective. This rate decrease, while welcome, hasn’t been enough to change the affordability equation for many prospective home shoppers, especially first-time buyers.

The reality is that while mortgage rates are easing, they are still considerably higher than what we've been accustomed to in recent years. Combined with still-elevated home prices in many areas, affordability remains a significant hurdle, especially for those who are entering the market for the first time and don't have the advantage of equity from selling an existing home.

We’ve also seen some concerning data on home sales recently. Sales of previously occupied homes fell in January. This is likely a result of the earlier surge in mortgage rates and persistent high prices that have been freezing out potential buyers, even with more homes becoming available on the market.

Adding to this cautious outlook, new data on pending home sales – which are considered a leading indicator of future completed sales – slid to an all-time low in January. This suggests that we might see further declines in home sales in the coming months, even with these recent rate drops. It's a bit of a mixed bag – rates are going down, which is good, but the broader market signals are still showing some headwinds.

Why Are Mortgage Rates Dropping?

So, what's behind this recent streak of falling mortgage rates? Well, mortgage rates don't operate in a vacuum. They are heavily influenced by several factors, especially how the bond market reacts to the Federal Reserve's interest rate policies.

In particular, the 10-year Treasury yield as a key benchmark. Lenders use this yield as a guide when pricing home loans. We've seen a pullback in mortgage rates that mirrors a decline in the 10-year Treasury yield. This yield, which was around 4.79% in mid-January, has been generally trending downwards since then.

This downward trend in the 10-year Treasury yield often reflects broader economic anxieties among bond investors. In this case, worries about the potential economic impacts of tariffs and other policies, like those proposed by the Trump administration, are mentioned as contributing factors. As of Thursday's midday trading, the 10-year yield was at 4.28%. Essentially, when investors are uncertain about the economic outlook, they tend to move towards safer investments like Treasury bonds, which can push yields down, subsequently influencing mortgage rates.

What Does This Mean for the Spring Homebuying Season?

The timing of this rate decline is particularly interesting because it coincides with the start of the spring homebuying season. This is typically the busiest time of year for the housing market, as families with children often prefer to move during the summer break.

Sam Khater, Freddie Mac’s chief economist, sums it up nicely, stating that “The drop in mortgage rates, combined with modestly improving inventory, is an encouraging sign for consumers in the market to buy a home.” I agree with this sentiment. We are seeing some positive shifts in the market.

Let's break down why this is potentially good news for the spring:

• Lower Rates = Increased Demand: Lower mortgage rates can entice more buyers to jump into the market. For those who were on the fence, the reduced borrowing costs might be the push they need to start actively house hunting.
• Modestly Improving Inventory: According to data from Redfin, the inventory of homes on the market climbed last month to its highest level since June 2020. More homes on the market mean more choices for buyers and potentially less intense bidding wars, although local market conditions will vary greatly.
• Potential for More Balanced Market: The combination of slightly lower rates and increased inventory could lead to a more balanced market, shifting away from the strong seller's market we've seen for the past few years. This doesn't mean it will suddenly become a buyer's market everywhere, but it could give buyers a bit more negotiating power and breathing room.

However, it's crucial to remember that even with these encouraging signs, mortgage rates and prices still remain an unaffordable combination for many. The market is still sensitive to any shifts in economic outlook and Federal Reserve policy. We could see rates fluctuate again if economic data surprises or if inflation proves to be more persistent than anticipated.

Takeaway:

The average mortgage rate falling for the 6th straight week and hitting its lowest level since December is undoubtedly positive news for the housing market. It offers a bit of relief to potential homebuyers and could inject some much-needed momentum into the spring homebuying season. However, it’s crucial to remember that affordability challenges remain, and the market is still navigating a complex economic landscape. While this rate dip is encouraging, it's just one step in what will likely be a longer journey toward a more balanced and accessible housing market.