Mortgage rates dip for a third week, giving buyers a bit of breathing room

The average 30-year mortgage rate slipped to 7.18%

• Mortgage rates fell for a third consecutive week, and the average 30-year fixed mortgage moved down to 7.18% from 7.24% the week before.

• The average 15-year fixed mortgage also edged lower, coming in at 6.57% after 6.60% a week earlier.

• Homebuyers are seeing some relief, though rates remain close to a full percentage point above where they were a year earlier, keeping pressure on affordability.

For the third week in a row, mortgage rates drifted lower, offering some relief to would-be buyers who have been dealing with much steeper borrowing costs in recent months.

Freddie Mac's latest Primary Mortgage Market Survey showed the average 30-year fixed-rate mortgage at 7.18%, a drop of six basis points from 7.24% the previous week.

The latest move extends a decline that started in mid-October, when the average 30-year rate was 7.40%. Over that span, rates have fallen by 22 basis points.

“Mortgage rates continued their downward trajectory this week, improving the environment for prospective homebuyers against a backdrop of strong economic growth,” said Sam Khater, Freddie Mac's chief economist.

Even with the recent easing, borrowing costs are still well above where they stood a year earlier, when the average 30-year mortgage rate was 6.22%. Treasury yields have also moved lower in the wake of the midterm elections, and a continued decline would likely help mortgage rates further.

The average 15-year fixed-rate mortgage also moved down this week, slipping to 6.57% from 6.60%. A year ago, the 15-year rate averaged 5.50%.

Smaller rates translate into lower monthly payments

Even a modest shift in mortgage rates can matter for buyers, especially those looking at more expensive homes.

For instance, a buyer purchasing a $400,000 home with a 20% down payment would borrow $320,000.

At the 7.40% rate seen in mid-October, the monthly principal and interest payment on a 30-year mortgage would be about $2,216.

At this week's 7.18% rate, that payment would fall to roughly $2,168, saving about $48 a month, or $576 a year.

Those figures do not include property taxes, homeowners insurance or other costs that can add hundreds of dollars to a monthly housing bill.

The comparison with a year earlier is less favorable. At last November's 6.22% rate, the same $320,000 mortgage would have carried a monthly principal and interest payment of about $1,964, which is roughly $204 less than today's amount.

What is pushing mortgage rates lower?

Mortgage rates usually move in step with yields on 10-year U.S. Treasury securities, which are shaped by inflation expectations, economic growth and investor appetite for bonds.

Treasury yields have fallen from their October highs, helping pull mortgage rates down as well. The 10-year Treasury yield was around 4.84% on Thursday, down from more than 5.30% in early October.

The recent drop comes after a stretch of sharp swings in the bond market, driven in part by inflation worries and higher energy prices.

Although Federal Reserve policy affects borrowing costs, the central bank does not directly set mortgage rates. Those rates can rise or fall even when the Fed keeps its benchmark rate unchanged.

Could lower rates lure buyers back?

The three-week slide may persuade some buyers who delayed purchases when rates climbed above 7.3% in October.

Still, affordability remains a major hurdle. Home prices are high in many markets, and the combined weight of mortgage payments, taxes and insurance continues to strain household budgets.

It is also unclear whether the recent improvement will last. Mortgage rates remain highly sensitive to inflation data, economic reports and shifts in Treasury yields.

For anyone thinking about buying, the latest decline may be a good time to revisit mortgage estimates and compare quotes from multiple lenders.

That kind of comparison matters because rates offered to individual borrowers can differ from Freddie Mac's national average depending on credit score, down payment, loan terms and other factors.

Freddie Mac's survey tracks conventional, conforming home purchase loans for borrowers with excellent credit and a 20% down payment.

In short, mortgage rates are moving in a more favorable direction for buyers, but the improvement has not been enough to offset the affordability strain created by high home prices and borrowing costs. Whether rates keep easing could shape how much activity returns to the housing market as the year goes on.