The average 30-year fixed mortgage rate rose to 6.55% this week, reversing last week's decline.
Despite the increase, rates remain below where they were a year ago, offering some relief to homebuyers.
Freddie Mac says improving affordability and growing housing inventory are creating a more favorable market for prospective buyers.
Mortgage rates moved higher this week, but Freddie Mac says the overall housing market is gradually becoming more favorable for would-be homebuyers as affordability improves and more homes become available.
Freddie Mac's latest Primary Mortgage Market Survey found the average rate on the benchmark 30-year fixed-rate mortgage climbed to 6.55% for the week ending July 16, up from 6.49% a week earlier. Even with the increase, the average rate remains below the 6.75% recorded during the same week a year ago.
The average rate on a 15-year fixed-rate mortgage, a popular choice among homeowners refinancing or buyers seeking lower interest costs, also increased. It rose to 5.93%, compared with 5.82% last week. A year ago, the 15-year mortgage averaged 5.92%.
"The 30-year fixed-rate mortgage averaged 6.55% this week," said Sam Khater, Freddie Mac's chief economist. "Purchase application demand has weakened recently, but housing affordability is more favorable and housing inventory continues to rise, thus the backdrop for prospective homebuyers is modestly improving."
Affordability still a challenge
Mortgage rates remain well above the historically low levels seen during the pandemic, when 30-year loans briefly fell below 3%. Those higher borrowing costs continue to weigh on affordability, particularly for first-time buyers who must contend with elevated home prices in many markets.
However, the combination of slightly lower mortgage rates compared with last year and a growing supply of homes for sale is beginning to shift conditions in buyers' favor.
Housing inventory has increased steadily over the past year as more homeowners list their properties and new construction adds to supply. A larger selection of homes has reduced some of the intense competition that characterized the housing market during the pandemic-era boom.
Buyers may have more negotiating power
The rise in available homes means buyers are increasingly able to negotiate on price, request seller concessions, or take more time making purchasing decisions. Some sellers are also offering mortgage rate buydowns or covering closing costs to attract buyers.
Still, financing costs remain a significant factor. On a $400,000 home with a 20% down payment, the difference between a mortgage rate in the mid-6% range and one closer to 3% translates into hundreds of dollars more in monthly payments.
Economists expect mortgage rates to remain volatile in the coming months as investors react to inflation data, Federal Reserve policy, and movements in the bond market. While the Fed does not directly set mortgage rates, yields on the 10-year Treasury note—which strongly influence mortgage pricing—often move in response to expectations for interest rates and economic growth.
For buyers who have been waiting on the sidelines, Freddie Mac's latest report suggests conditions are slowly improving, even if borrowing costs remain higher than many households would prefer. With more homes available and mortgage rates below year-ago levels, prospective buyers may find more opportunities heading into the second half of the year.