Purchasing a home just became a lot cheaper, thanks mostly to the Federal Reserve's decision last week to put its interest rate hikes on hold for now.
Mortgage buyer Freddie Mac said Thursday that the average 30-year fixed rate mortgage plunged to 4.06 percent this week, down from 4.28 percent last week. That's the steepest weekly drop in a decade.
Last week, Fed chairman Jerome Powell said the U.S. economy faces several headwinds, including slowing global growth, a trade war with China, and fading impacts from last year's tax cuts. Fed policymakers signaled they were unlikely to raise rates this year, after projecting two hikes in December.
Lower mortgage rates, slowing home price increases and a pickup in the number of available homes appear to be rejuvenating home sales after a slowdown last year.
Sales of existing homes surged 11.8 percent in January, a sign that lower rates were encouraging more people to buy homes. The average 30-year rate reached 4.95 percent in November, following a series of rate hikes by the Fed.
Mortgage costs are more directly influenced by the yield on the 10-year Treasury note, which also rose last year as many investors shifted money into stocks. Stock market indexes rose at a healthy pace until last fall.
The yield on the 10-year note has fallen sharply since last year, when it touched 3.21 percent in November. On Thursday it fell to 2.39 percent in mid-day trading.
Potential buyers have rushed to take advantage of the cheaper borrowing costs. An index measuring applications for mortgage loans jumped 9 percent last week, the Mortgage Bankers Association said.
Fewer people signed contracts to buy homes in February compared with the previous month, suggesting home sales will cool off a bit after January's big jump. But economists expect sales will continue to improve this year after last year's slowdown.
Hiring has been steady in recent months and average pay growth has accelerated, making a home purchase more affordable.
"With mortgage demand strengthening in the wake of the decline in mortgage rates, we look for better sales in the second quarter," said Ian Shepherson, chief economist at Pantheon Macroeconomics.
Freddie Mac surveys lenders across the country between Monday and Wednesday each week to compile its mortgage rate figures.
The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates.
The average fee on 30-year fixed-rate mortgages ticked up this week to 0.5 point from 0.4 point.
The average 15-year mortgage rate also fell, to 3.57 percent from 3.71 percent. The fee was unchanged at 0.4 point.
The average rate for five-year adjustable-rate mortgages dropped less sharply, to 3.75 percent from 3.84 percent. The fee remained at 0.3 point.