(Reuters) - The average interest rate on the most popular U.S. home loan fell this week to below 7% for the first time since August as Treasury market yields dropped sharply after the Federal Reserve firmly signaled it is nearing cuts to its policy rate.
The average contract rate on a 30-year fixed-rate mortgage fell to 6.95% this week from 7.03% in the prior week, according to a Freddie Mac survey released on Thursday.
The yield on the 10-year Treasury note acts as a benchmark to set home loan costs. Borrowing costs for home purchases had reached two-decade highs near 8% in October.
Yields were already falling but tumbled further after the U.S. central bank left interest rates unchanged on Wednesday and Fed Chair Jerome Powell said its tightening cycle is likely over with discussions on cutting rates coming "into view" given inflation has been falling faster than expected.
The anticipation that the Fed will cut rates faster and sooner than previously thought caused the bond market to extend its monster rally on Thursday, with U.S. benchmark 10-year yields on Thursday sinking to their lowest level since July. Two-year yields fell to their lowest level since May.
Daily average mortgage rates have fallen to 6.82%, their lowest level since May, Redfin (NASDAQ:RDFN) also reported on Thursday, citing Mortgage News Daily data. It is the first time daily rates have fallen below 7% since July.
Mortgage payments are also at their lowest level since April, according to Redfin data. The median U.S. mortgage payment was $2,503 as of the four weeks ending Dec. 10, down $233 from October's record high.