30-year mortgage rate drops to record low
The 15-year fixed-rate average slid to 2.35 percent from 2.37 percent, with an average 0.5 point. The five-year adjustable-rate average of 2.90 percent, with an average 0.2 point, was up from the 2.89 percent of the previous week. The 15-year rate was 3.15 percent and the five-year was 3.35 percent a year ago.
“I’m actually surprised by this good news for buyers that mortgage rates dropped even further this week. I thought we had hit the lowest possible rate before,” said Lawrence Yun, chief economist for the National Association of Realtors.
“Investors are perceiving mortgages as a safe investment, as safe as U.S bonds,” he said. “Investors see little risk in the housing market and in investing in mortgages.”
Mortgage rates have been at historically low levels since March, when the Federal Reserve started purchasing mortgage-backed securities (MBSs), bundled mortgages sold to investors. The action was meant to provide more credit in the market and has resulted in a three-quarters of a percent drop since spring. The Fed has said it would keep that policy in place at least until 2023, almost guaranteeing that rates will remain low for the long term.
“Low mortgage rates have become a regular occurrence in the current environment,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “As we hit yet another record low, the tenth record this year, many people are benefitting as refinance activity remains strong. However, it’s important to remember that not all people are able to take advantage of low rates given the effects of the pandemic.”
For borrowers, the difference in the 30-year fixed-rate this week, compared with this same time last year is a savings of as much as $190 per month on a $400,000 loan.
“One negative of these low rates for buyers is that they are contributing to rising home prices,” Yun said. “One solution for buyers looking for affordability is to move farther away from the city where they can find lower prices and still benefit from lower rates. That’s easier for people who can work from home and don’t need to commute.”
The averages are generated from Freddie Mac’s Primary Mortgage Market Survey, which gauges the rates that about 80 lenders nationwide offer buyers between Monday and Wednesday every week. The survey covers rates on conventional home loans for borrowers who make a 20 percent down payment and have excellent credit.
Rates are largely determined by investors in mortgage bonds responding to a range of factors, including Federal Reserve policies, the stock market and the yield on 10-year Treasury notes, as well as uncertainty about the November election and the coronavirus. Lenders also factor in the volume of applications they receive a given week, fees they are charged by Freddie Mac and Fannie Mae, and a borrower’s credit score.
“Lenders can have flexibility on their rates and use their own discretion to adjust for risk, expense, or a conscious decision to be more or less price aggressive in the marketplace,” Nicholas LaClair, a pricing analyst and head of the lock desk at Embrace Home Loans in Portsmouth, R.I., said in an email.
The market composite index, which measures the total number of applications, fell 0.3 percent. The purchase index decreased 1 percent but was 24 percent higher than a year ago. The refinance index fell 0.3 percent from a week earlier and was 44 percent higher than a year ago.
“Refinance and purchase activity continue to run well ahead of last year’s pace, fueled by record-low rates and strong homebuyer demand,” Joel Kan, the association’s associate vice president of economic and industry forecasting, said in a statement. “Housing supply is a challenge for many aspiring buyers, but activity should continue to stay strong the rest of the year.”
Correction: An earlier version of this report incorrectly said that the five-year adjustable-rate average went down this week. It was 2.90, up from 2.89 a week ago. Also, the last name of Nicholas LaClair of Embrace Home Loans was misspelled. This post has been corrected.
