As the crucial spring home-buying season approaches, a key U.S. mortgage rate has dropped to its lowest level in over three years.
Data released by Freddie Mac on Thursday showed the average rate for a 30-year fixed-rate mortgage was 6.06%, down from 6.16% the previous week, marking the lowest point since September 2022. Since that month in 2022, U.S. mortgage rates have not fallen below the 6% threshold. Through adjustable-rate loans, American borrowers can now secure rates below 6%, a psychologically significant barrier.
Reducing borrowing costs is a central objective of President Trump's plan to improve housing affordability. Following his announcement last week of a $200 billion mortgage bond purchase program, mortgage rates have subsequently declined. Persistently high loan rates in recent years had forced many potential buyers and sellers to remain on the sidelines.
Redfin data, traceable back to 2012, indicates that pending home sales in December fell to a seasonally adjusted historic low, excluding the period of pandemic lockdowns in April 2020.
However, analysts point out that the real question is whether the drop in mortgage rates will be sufficient to lure hesitant buyers back into the market.
In some respects, buying conditions are already improving: inventory has seen a slight increase, home price growth is moderating, and rates have retreated from levels around 7% seen in early 2025. Nevertheless, many housing experts believe that mortgage rates need to fall significantly further to truly "unfreeze" the market. The reason is that homeowners with low-rate existing mortgages are reluctant to sell and then purchase a new home at a much higher rate.
According to Ice Mortgage Technology, approximately 70% of borrowers have locked-in rates below 5%. More than half of borrowers have rates below 4%. This implies that rates would need to drop to even lower levels before many homeowners would consider moving.
When factoring in income growth, data from Compass Inc. shows that U.S. housing affordability has actually returned to its best level since 2020. Yet, during times of economic uncertainty like the present, buyers tend to be more cautious. It's a trade-off between lower rates and job security. Which factor will prevail by the spring of 2026 remains to be seen. An optimistic view is that market conditions will be markedly better by early spring compared to the same period last year.
Furthermore, market volatility stemming from the political interplay between President Trump and Fed Chair Powell does not necessarily guarantee lower rates. The risk is that if investors begin to question the Federal Reserve's independence, it could drive up U.S. Treasury yields, which serve as a key benchmark for mortgage rates.
Thomas Ryan, North America economist at Capital Economics, stated that economic conditions, particularly inflation and employment, will be the decisive factors for the real estate market's trajectory. Trump's bond purchase plan alone may not provide substantial relief for consumers. "In our view, a $200 billion purchase is a drop in the bucket within the vast mortgage-backed securities market; it's not enough." The firm forecasts that mortgage rates will stabilize at 6.5% by the end of this year, revising its previous forecast of 6.75%.
It is important to note, however, that significant regional disparities exist within the housing market. In the Northeast and Midwest, where prices have risen rapidly and inventory is tight, lower rates could potentially increase competition and push prices even higher. Conversely, in areas with relatively softer markets and ample supply, particularly the Sun Belt region, homebuyers are likely to benefit more substantially.
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