The average rate on a 30-year mortgage fell to 6.86% this week, the lowest level since early April

LOS ANGELES (AP) — The average rate on a 30-year mortgage dropped again this week, a welcome trend for prospective homebuyers facing record high home prices.

Mortgage buyer Freddie Mac reported Thursday that the rate fell to 6.86% from 6.87% last week. A year ago, the rate averaged 6.71%.

It’s the fourth consecutive weekly drop in the rate, which has hovered around 7% most of this year. Home sales have fallen in recent months as higher rates, which can add hundreds of dollars in costs each month to borrowers, deterred many homebuyers.

Sales of previously occupied U.S. homes fell for the third consecutive month in May. Sales of newly built single-family homes fell 7.7% and 16.5% in April and May, respectively, compared to a year earlier.

“30-year fixed-rate mortgages continued to decline, reaching the lowest level in nearly three months,” said Sam Khater, Freddie Mac’s chief economist. “By historical standards, the economy is in good shape, and we expect rates to continue to trend lower into the summer months, drawing additional homebuyers back into the market.”

Mortgage rates are influenced by a number of factors, including the bond market’s reaction to the Federal Reserve’s interest rate policy and changes in the 10-year Treasury yield, which lenders use as a guide for pricing home loans.

Interest rates, which peaked above 4.7% in late April, have fallen recently as some economic data show slower growth, which could help curb inflation pressures and persuade the Federal Reserve to lower its key interest rate from the highest level in more than 20 years.

Earlier this month, Fed officials said inflation had edged closer to their target level of 2% in recent months and indicated they expect to cut their benchmark interest rate once this year. The central bank previously forecast three cuts through 2024, raising expectations for further lower mortgage rates than has been expected in the housing market so far.

With only one interest rate cut expected before the end of this year, “relief may come too little and too late for many first-time homebuyers,” said Jiayi Xu, an economist at Realtor.com.

“For home buyers and sellers, the peak in mortgage rates may be behind us, but the risk of volatility remains, complicating relocation decisions,” Xu said.

As interest rates have fallen in recent weeks, homebuyers have also agreed on lower monthly payments when applying for a mortgage.

The national average monthly payment listed on home loan applications in May was $2,219, down 1.6% from the previous month but up 2.5% from May of last year, according to the Mortgage Bankers Association.

The MBA estimates that mortgage rates will fall to closer to 6.5% by the end of this year.

This may not be enough to attract homeowners who purchased or refinanced homes with interest rates below 4% or 3%, since about 90% of homes with mortgages have interest rates at or below 6%.

Meanwhile, mortgage rates rose this week for 15-year fixed-rate loans, which are popular among owners refinancing their home loans. They averaged 6.16% this week, compared with 6.13% last week. Freddie Mac said it averaged 6.06% a year ago.