By Jacob Passy
Could average mortgage rates drop below the 3% mark? If the recent trend continues, that’s a distinct possibility.
The 30-year fixed-rate mortgage averaged 3.07% for the week ending July 2, down six basis points from the week prior, Freddie Mac (OTC:FMCC) reported Thursday . In comparison, these loans had an average rate of 3.75% a year ago.
The 15-year fixed-rate mortgage dropped three basis points to an average of 2.56%, while the 5-year Treasury-indexed hybrid adjustable-rate mortgage fell by eight basis points to 3%.
The previous record low for the benchmark 30-year mortgage was set just two weeks ago at 3.13%. Mortgage rates have dropped to historic lows multiple times this year as the coronavirus pandemic has caused turmoil in markets and the economy.
This week, the decline in rates came “as investors reacted to the surge in COVID cases and the Federal Reserve’s concerned outlook for economic recovery,” said George Ratiu, a senior economist at Realtor.com. The drop came even though there were some positive indicators about the state of the economy, including the rise in pending home sales and consumer confidence.
(Realtor.com is operated by News Corp (NAS:NWSA) subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)
When the coronavirus outbreak first began worsening in the U.S., many mortgage and real-estate experts ruled out the possibility of rates dropping below that threshold.
But now rates on the 30-year loan are standing at the precipice of the 3% mark. “Mortgage rates continue to slowly drift downward with a distinct possibility that the average 30-year fixed-rate mortgage could dip below 3 percent later this year,” said Sam Khater, Freddie Mac’s chief economist, in this week’s report.
The trajectory of rates will largely depend on the direction the recovery from the pandemic takes. Many states across the country have seen a surge in COVID-19 cases recently.
‘Getting approved for a loan is proving to be a difficult challenge for many, especially first-time homebuyers who struggle to come up with a 20% down payment.’
George Ratiu, a senior economist at Realtor.com
And some of those states were driving the rebound in the housing market that began taking shape back in May. A report released this week by the housing data provider HouseCanary found that Florida and Texas were leading the country in terms of elevated demand for homes at the end of June.
Both states have seen thousands of new COVID-19 cases on a daily basis in recent weeks, though, suggesting that the surge in coronavirus infections might threaten the housing market’s rebound.
And record-low mortgage rates aren’t having the same boost to consumer interest that they usually do. Last week, the number of applications for mortgages used to purchase homes dropped, according to data from the Mortgage Bankers Association.
“Getting approved for a loan is proving to be a difficult challenge for many, especially first-time homebuyers who struggle to come up with a 20% down payment,” Ratiu said.
Lenders have raised their underwriting standards in the face of the economic downturn, which could limit how much of a stimulatory effect interest rates will have on the housing market.