Mortgage Rates – Could They Fall Further?
Realtor.com asks a key question. In an article written by Clare Trapasso, she asks Mortgage Rates Hit Record Lows. Could They Fall Even Further? Well, could they? Mortgage Rates – Could They Fall Further?
“One of the few bright spots for home buyers and owners in 2020—a year marred by a pandemic, economic recession, social unrest, wildfires, hurricanes, and a highly polarized presidential election—has been rock-bottom mortgage interest rates.
Mortgage Rates – Could They Fall Further?
Mortgage rates have been tumbling since COVID-19 disrupted the nation’s economy, achieving what many experts had believed was impossible: They dipped just below 3% in July. Rates have since fallen even further, reaching an all-time low of 2.86% for the average 30-year fixed-rate loan in the week ending Sept. 10, according to Freddie Mac. They ticked up to 2.87% in the week ending Sept. 17.
Those lower rates have allowed buyers to stretch their budgets at a time when home prices are on the rise. Homeowners who refinance their existing loans can potentially shave $100—or more—off their monthly mortgage payments, saving tens of thousands of dollars over the life of their loans.
Can interest rates fall even further, and just how low might they go?
“The honest answer is, we don’t know. Economists have not had much luck forecasting where rates will go, says Len Kiefer, Freddie Mac’s deputy chief economist.
Kiefer points out rates have typically fallen by about two percentage points a decade. In the 2010s, they were around 4%. So they could, potentially, sink further into the low 2% range if they keep up that pattern.
How Are Rates Determined?
Rates are determined more by investors than by the Federal Reserve’s rates. Lenders don’t want to hold onto the mortgage loans they make, as they want to free up capital to make new loans and profit off those. So they bundle up their mortgages and sell these mortgage bonds, aka mortgage-backed securities, on the secondary market to investors.
One school of thought says rates could easily drop to around 2%. However, for lenders [who set their rates], the likelihood of rates going much lower is pretty slim. The risk to the bank is they will be stuck with loaning money for 30 years at 2%. That is not a game the banks can win, but the homeowner would
Now suppose the Federal Reserve is successful at getting inflation over 2%. Interest rates may go up. Investors could demand higher rates if international investors lose confidence in the U.S. Politics, riots in the street, and worry over the ballooning debt could move rates a lot higher.
“If you’re in the market for a refinance or a home purchase, rates can move very quickly,” says Kiefer. “The rate [you] see this week could be very different next week. There’s a lot of room for rates to move.”
That means buyers and those seeking to refinance need to have a good grasp of what the numbers mean for them.
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