By Alex Veiga | The Associated Press

The average rate on a 30-year U.S. mortgage fell to its lowest level since early May, an encouraging trend for prospective homebuyers at a time when the U.S. housing market remains largely held back by elevated borrowing costs and rising prices.

The long-term rate fell to 6.77% from 6.81% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.86%.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also fell. The average rate dropped to 5.89% from 5.96% last week. A year ago, it was 6.16%, Freddie Mac said.

High mortgage rates can add hundreds of dollars a month in costs for borrowers and reduce their purchasing power. That’s helped keep the U.S. housing market in a sales slump that dates back to 2022, when mortgage rates began to climb from the rock-bottom lows they reached during the pandemic.

Last year, sales of previously occupied U.S. homes sank to their lowest level in nearly 30 years. They’ve remained sluggish so far this year, as many prospective homebuyers have been discouraged by elevated mortgage rates and home prices that have kept climbing, albeit at a slower pace.

Elevated borrowing costs are also putting pressure on the new-home market. Sales of new U.S. homes fell nearly 14% in May from the previous month, the government reported Wednesday.

“Stuck in a bit of a rut, the housing market continues to suffer from high home prices and elevated mortgage rates,” said Hannah Jones, senior economic research analyst at Realtor.com. “However, climbing for-sale inventory in much of the country could help soften upward price pressure and usher in a more friendly housing market for buyers.”

New data suggests sales could pick up in the coming months. A seasonally adjusted index of pending U.S. home sales rose 1.8% in May from the previous month and increased 1.1% from May last year, the National Association of Realtors said Thursday.

There’s usually a month or two lag between a contract signing and when the sale is finalized, which makes pending home sales a bellwether for future completed home sales.

Mortgage rates are influenced by several factors, from the Federal Reserve’s interest rate policy decisions to bond market investors’ expectations for the economy and inflation.

The key barometer is the 10-year Treasury yield, which lenders use as a guide to pricing home loans. The yield was at 4.28% in midday trading Thursday, down from 4.58% just a few weeks ago.

The average rate on a 30-year mortgage has remained relatively close to its high so far this year of just above 7%, set in mid-January. The 30-year rate’s low point this year was in early April when it briefly dipped to 6.62%.

Mortgage rates have now fallen four weeks in a row, reflecting the recent pullback in bond yields. With the latest decline, the average rate is now at its lowest level since May 8, when it was 6.76%.

The decline in mortgage rates may have encouraged some home shoppers. Last week, mortgage applications rose 1.1% from a week earlier, according to the Mortgage Bankers Association.

Economists generally expect mortgage rates to stay relatively stable in the coming months, with forecasts calling for the average rate on a 30-year mortgage to remain in a range between 6% and 7% this year.