U.S. home sales are on track for the worst year since 1995

The average rate for a 30-year mortgage in the U.S. declined for the third consecutive week, providing some relief for potential homebuyers during what is typically a quieter period for the housing market.

Mortgage buyer Freddie Mac reported Thursday that the rate dipped to 6.6%, down from 6.69% the previous week. This marks a decline from the 6.95% average recorded a year ago.

Similarly, rates on 15-year fixed-rate mortgages, often favored by homeowners looking to refinance, also fell. The average rate dropped to 5.84% from 5.96% last week, compared to 6.38% a year ago, according to Freddie Mac.

The 30-year mortgage rate now stands at its lowest level since October 24, when it was 6.54%.

“Recent mortgage rate declines, combined with steady consumer income growth and a robust stock market, have bolstered homebuyer demand in recent weeks,” said Sam Khater, chief economist at Freddie Mac. “However, while the housing market outlook is improving, affordability challenges still weigh heavily on buyers.”

High mortgage rates and increasing home prices have made homeownership less attainable for many, with U.S. home sales on track for their weakest year since 1995.

Mortgage rates are influenced by various factors, including fluctuations in the yield on 10-year U.S. Treasury bonds, which lenders use as a benchmark for pricing home loans. The yield, which was below 3.7% in September, has hovered around 4.2% this month, reaching 4.3% by midday Thursday.

The decline in rates comes after a steady upward trend earlier this year. Rates dropped to a two-year low of 6.08% in late September after the Federal Reserve reduced its benchmark interest rate from a two-decade high. While the Fed doesn’t directly set mortgage rates, its actions and the direction of inflation significantly influence the yield on 10-year Treasury bonds.

Economists and traders anticipate another Fed rate cut at next week’s policy meeting, which could further impact borrowing costs.

In the meantime, buyers and homeowners seeking to refinance are taking advantage of the recent dip in rates. Mortgage applications increased 5.4% last week, marking the fifth consecutive weekly rise, according to the Mortgage Bankers Association (MBA). Refinance applications surged by 27%.

“Purchase applications have shown annual increases nearly every week over the past three months, signaling a positive end to the year for the mortgage market,” said Bob Broeksmit, CEO of the MBA.

Despite the recent decline, many prospective buyers remain cautious, hoping for further rate reductions. However, relief may be limited, as housing economists predict the average 30-year mortgage rate will stay above 6% next year.