Mortgage rates this week fell to their lowest level in 15 months, easing borrowing costs for homebuyers eager for a thaw in the housing market in 2026.
The average interest rate on a 30-year fixed mortgage stands at 6.15%, plummeting from a level of 6.89% in May, data from financial services company Freddie Mac showed. Last January, the average 30-year fixed mortgage rate exceeded 7%.
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Each percentage point decrease in a mortgage rate can save thousands or tens of thousands in additional cost each year, depending on the price of the house, according to lender Rocket Mortgage.
Sam Khater, the chief economist at Freddie Mac, called the drop in mortgage rates an “encouraging sign for potential homebuyers heading into the new year.”
Mortgage rates closely track the yield on a 10-year Treasury bond, or the amount paid to a bondholder annually. Bond yields are shaped in part by expectations of the benchmark interest rate set by the Federal Reserve.
The sharp drop in mortgage rates over the latter half of 2025 owed in part to data showing a slowdown in hiring, which heightened expectations that the Fed would slash interest rates in an effort to boost the ailing labor market.
Starting in September, the Fed cut interest rates at three consecutive meetings, bringing the benchmark rate to a level between 3.5% and 3.75%. That figure marks a significant drop from a recent peak attained in 2023, but borrowing costs remain well above a 0% rate established at the outset of the COVID-19 pandemic.
After the Fed’s most recent rate cut in December, Fed Chair Jerome Powell suggested the central bank may be cautious about further rate reductions.
“We’re well positioned to wait and see how the economy evolves,” Powell said.
The housing market is suffering from a phenomenon known as the “lock in” effect, some experts previously told ABC News.
While mortgage rates have fallen, they remain well above the rates enjoyed by most current homeowners, who may be reluctant to put their homes on the market and risk a much higher rate on their next mortgage.
In turn, the market could continue to suffer from a lack of supply, making options limited and prices sticky.
Mixed results in recent economic data have clouded the outlook for the economy — and in turn, interest rates.
A jobs report released two weeks ago showed sluggish hiring and an uptick in the unemployment rate. Unemployment remains low by historical standards but has inched up to its highest level in years.
