Mortgage rates fall to yet another historic low

The 15-year fixed-rate average decreased to 2.33 percent from 2.35 percent, with an average 0.6 point. The five-year adjustable-rate average of 2.87 percent, with an average 0.3 point, was down from the 2.90 percent of the previous week. The 15-year rate was 3.18 percent and the five-year was 3.40 percent a year ago.

“We expected mortgage rates to rise a little this week, but I’m not completely surprised that they dropped again,” said George Ratiu, senior economist with Realtor.com. “When economic news isn’t so rosy, investors turn to the safety of bonds. The housing market is still strong, so investors looking for someplace to put their money are more likely to put their money in mortgage bonds, which leads to lower yields and lower interest rates.”

The economic recovery is still slow, Ratiu said.

“Even though the number of new unemployment claims dropped below 800,000 in this morning’s report, that’s still about four times a typical level,” Ratiu said. “In addition, the discussion on a new fiscal stimulus still appears to be dragging. Investors anticipated a rosier picture seven months after the pandemic started.”

The median existing-home sales price rose to $311,800 in September, nearly 15 percent higher than September 2019, according to the NAR. Houses are selling fast, too, with 71 percent selling in less than one month in September. Because homes are being snapped up so quickly, there’s a record low number of homes for sale. If the sales pace continues, the 1.47 million homes on the market now will be gone in 2.7 months, according to the NAR.

New home construction is speeding up in response to buyer demand, with housing starts for single-family houses up 22.3 percent in September compared to September 2019, according to the Census Bureau. Starts refer to the beginning of construction. The pipeline of single-family houses continues to grow, with new home permits for houses up 24.3 percent year-over-year.

Another key metric showing consumers paying off mortgages early because they’re either selling a home to buy another one or refinancing their mortgage rose to its highest level in 16 years. Prepayment activity was 3.04 percent of all mortgages, up 12.7 percent from August to September, the first time prepayments were above 3 percent since 2004, according to Black Knight, a mortgage data analytics firm. Moreover, prepayments jumped 95.96 percent year-over-year in September.

Mortgage rates since the spring have dropped more than three-quarters of a percent to historically low levels, thanks largely to an intervention by the Federal Reserve to stabilize the housing market. The Fed has been purchasing mortgage-backed securities (MBSs) — bundled mortgages sold to investors — to provide more credit in the market. The Fed said it plans to stick with the policy until at least 2023, meaning that the rates should remain low for the long haul.

Freddie Mac calculates the averages from its Primary Mortgage Market Survey, which every week from Monday to Wednesday queries about 80 lenders nationwide on the rates they’re offering borrowers. The survey only focuses on borrowers seeking conventional mortgages with excellent credit making a 20 percent down payment.

In addition to the Fed policies, rates are also determined by investors in mortgage bonds responding to the stock market, the yield on 10-year Treasury notes, the coronavirus and other economic and political factors.

Lenders will only make loans that they know they can sell to Fannie Mae, Freddie Mac or Ginnie Mae, experts say. When times are good, investors demand higher yields on mortgage bonds, forcing lenders to increase mortgage rates. In less certain times, like now, rates tend to drop with investors more willing to take lower yields into account.

Lenders also adjust costs to borrowers based on the volume of applications they receive a given week and fees they are charged by Freddie Mac and Fannie Mae.

“Mortgage rates remain very low, providing homeowners who have not already taken advantage of this environment ample opportunity to do so,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “Mortgage rates today are on average more than a full percentage point lower than rates over the last five years. This means that most low- and moderate-income borrowers who purchased during the last few years stand to benefit by exploring refinancing to lower their monthly payment.”

Low mortgage rates make financing a home purchase less costly, but higher prices are outpacing wage growth.

While the lower rate this week saves about $150 per month on the average mortgage compared with the rate a year ago, that savings is offset by home price increases.

“Right now, given the 11 percent increase in home prices [from a year ago] and the lower mortgage rate, buyers are really savings only about $5 per month on their mortgage costs than they were a year ago,” Ratiu said. “We’re getting very close to the tipping point where price increases completely wipe out the savings from lower rates.”

The market composite index, which measures the total number of applications, dropped 0.6 percent. The purchase index fell 2 percent but surged 26 percent from a year ago. The refinance index rose 0.2 percent from a week earlier but climbed 74 percent from a year earlier.

“Applications to buy a home decreased slightly last week, but the year-over-year growth trend remains intact,” Bob Broeksmit, the association’s president and CEO, said in a statement.

He added that purchase activity has risen on an annual basis for 22 consecutive weeks.