It’s down from last week’s 7.22% average for a 30-year, fixed-rate loan. Freddie Mac’s chief economist says they need to drop more, but it’s a “welcome relief.”

LOS ANGELES (AP) – Home loan financing costs eased again this week, as the average long-term U.S. mortgage rate slid to its lowest level in four months.

The average rate on a 30-year mortgage dropped to 7.03% from 7.22% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.33%.

The last time the average rate was lower was in early August, when it was at 6.96%.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loan, also declined this week, with the average rate falling to 6.29% from 6.56% last week. A year ago, it averaged 5.67%, Freddie Mac said.

This is the sixth straight weekly drop for rates, echoing a recent pullback in the 10-year Treasury yield, which lenders use as a guide to pricing loans. The yield, which in mid-October surged to its highest level since 2007, has been falling on hopes that the Federal Reserve may finally be done raising interest rates in its bid to tame lower inflation.

“Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand,” said Sam Khater, Freddie Mac’s chief economist.

The average rate on a 30-year home loan climbed above 6% in September 2022 and has remained above that threshold since. In late October, it reached 7.79%, the highest level on records going back to late 2000.

The recent downward shift in mortgage rates is a welcome development for prospective homebuyers facing a housing market that remains unaffordable to many Americans.

While sales of previously occupied U.S. homes are down 20.2% through the first 10 months of this year, home prices have kept climbing amid a stubbornly low supply of properties on the market. But as mortgage rates ease, they boost borrowers’ purchasing power, increasing how much home they can afford.

Still, the average rate on a 30-year home loan remains sharply higher than just two years ago, when it was 3.10%. The large gap between rates now and then is contributing to the low inventory of homes for sale by discouraging homeowners who locked in rock-bottom rates two years ago from selling.

So far, the pullback in rates has spurred a pickup in demand for home loans. Mortgage applications notched their fifth consecutive weekly increase last week, according to the Mortgage Bankers Association.

Several housing economists are projecting that mortgage rates will continue to ease in 2024, though the forecasts call for the average rate on a 30-year home loan to remain above 6%, still about double what the average rate was just two years ago.

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