The mortgage rate for 30-year mortgages fell slightly over the past week, marking three straight weeks rates remained below 3%.
The average interest rate on a 30-year fixed-rate mortgage fell to 2.96%, according to Freddie Mac. The 15-year fixed-rate mortgage dropped to 2.30%.
The dip offers an opening for homebuyers looking to lock in a low rate and for homeowners who didn't get a chance to refinance when rates hit a record low.
Rates kicked off the new year at the lowest levels ever and climbed steadily, rising above the 3% threshold on a 30-year fixed rate in March. Then they began dropping in April. Generally, rates are widely expected to continue to move higher over the course of the year.
"The combination of low and stable rates, coupled with an improving economy, is good for homebuyers," said Sam Khater, Freddie Mac's Chief Economist. "It's also good for homeowners who may have missed prior opportunities to refinance and increase their monthly cash flow."
But the Mortgage Bankers Association said refinances were flat last week and purchase applications fell a bit in its survey.
Both conventional and government-backed loan applications declined, said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting, but the average loan size increased for both types.
"This is a sign that the competitive purchase market, driven by low housing inventory and high demand, is pushing prices higher and weighing down on activity," Kan said. "The higher prices are also affecting the mix of activity, with stronger growth in purchase loans with larger-than-average balances."
A slate of positive economic news caused an unexpected decline in Treasury yields, and mortgage rates tend to move in the same direction, said George Ratiu, senior economist at Realtor.com. Strong sales reports for cars and light trucks in April, as well as higher factory orders and private payrolls, all bode well for the economy. In addition, jobless claims dropped below 500,000 for the first time since the pandemic began.
But strong demand, along with historically low inventory, continue to push home prices higher.
"Real estate markets continue to see asking prices near record highs, as the favorable financing environment has motivated buyers to keep searching for homes, even amid tight inventory," said Ratiu.
On a promising note for desperate buyers, Ratiu said the latest weekly update from Realtor.com shows that the number of sellers choosing to list their home is growing, as a rising number of larger states, including Florida, New York, and New Jersey announced they are loosening or removing Covid restrictions.
"For first-time homebuyers, rising inventory and low interest rates open the window of opportunity wider as we move through May, hinting that we might see price gains begin to moderate," Ratiu said.