Washington, DC – CNN

Homebuyers saw another week of falling mortgage rates, with the average rate dropping last week for the third week in a row, according to data from Freddie Mac released Thursday.

The 30-year fixed-rate mortgage averaged 6.32% in the week ending March 30, down from 6.42% the week before. A year ago, the 30-year fixed-rate was 4.67%.

“Economic uncertainty continues to bring mortgage rates down,” said Sam Khater, Freddie Mac’s chief economist. “Over the last several weeks, declining rates have brought borrowers back to the market but, as the spring homebuying season gets underway, low inventory remains a key challenge for prospective buyers.”

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.

Markets digest Fed’s recent rate hike
After hitting a 2022 high of 7.08% in November, rates started 2023 trending down. However, they climbed again in February, after robust economic data suggested the Federal Reserve was not done in its battle to cool the US economy and would likely continue hiking its benchmark lending rate.

Last week the Federal Reserve did raise interest rates — by a quarter point — in an effort to continue to fight stubbornly high inflation while taking into account recent risks to financial stability.

“As the dust settled after last week’s FOMC meeting, markets adjusted to the short- and long-term implications of higher interest rates and the possibility of stricter lending requirements, along with a possible end to rate hikes on the horizon,” said Hannah Jones, economic data analyst at Realtor.com.

The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

The banking turmoil may do some of the Fed’s work of cooling inflation for it.

“These factors create a less hospitable borrowing environment, which would serve to bring inflation closer to a healthy level,” Jones said. “More expensive, stricter lending helps to usher in the long-term health of the economy, but the downside is that borrowing for large purchases, including a home purchase, may be relatively more challenging in the short term.”

Buyers looking for improvements in affordability
Potential buyers still face elevated mortgage rates and home prices, making buying less accessible than a year ago, said Jones.

In good news for buyers, home prices show continued signs of not climbing so fast or even dropping in some areas.

“Pent-up housing demand is evident with every gain in affordability, whether it be softening prices or lower mortgage rates,” said Jones. “As the prime spring buying season takes off, buyers will be looking for well-priced, ready-to-move-in homes.”

Buyers continue to be very sensitive to mortgage rates and are expected to eye any more dips this spring as an opportunity.

“The mortgage market has seen a partial revival in March, with the recent decline in mortgage rates boosting borrower demand,” said Bob Broeksmit CEO of the Mortgage Bankers Association.

While applications for home purchases and refinances are still well below levels from a year ago, both have increased for four consecutive weeks, according to MBA.

“New and existing supply is still low, but lower mortgage rates and slower home-price growth have improved buyers’ purchasing power this spring,” he said.