Rates for 30-year fixed home loans fell this week, reducing borrowing costs amid signs the U.S. housing market is stabilizing.
The average 30-year rate fell to 5.08% from 5.14%, according to data released Thursday by Freddie Mac. The 15-year rate was 4.54%.
"The drop in mortgage rates is probably a function of the longer-term Treasuries coming down a bit," said George Mokrzan, a senior economist at Huntington National Bank in Columbus, Ohio. "That's a good thing. That should help to further support housing markets and give a little bit more support to that early stage of recovery."
Falling home prices, a government tax credit for first-time buyers and low mortgage rates are bolstering demand for housing.
New home sales and pending home sales gained more than forecast in July and sales of existing homes rose to the highest in almost two years.
The Federal Reserve set out last year to encourage lower mortgage rates by pledging to buy bonds backed by home loans. It increased the size of the program to $1.25 trillion in March.
Those bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae brought down yields on mortgage-backed securities and allowed lenders to reduce rates on new loans.
The central bank said last week that it bought a greater-than-average amount of mortgage bonds for two weeks in a row, following a period of reduced purchases.
Net purchases totaled $25.4 billion in the week that ended Aug. 26, compared with a weekly average of $23.3 billion since the Fed began the initiative in January, according to data from the New York Fed.