US mortgage rates have dropped to another all-time low. Can they go even lower?


Mortgage rates keep rewriting the record books. Mortgage giant Freddie Mac says rates on 30-year fixed-rate mortgages dropped last week to a new low in its survey that goes back nearly 50 years — and it’s the fourth time that’s happened since early March.

Freddie Mac says the typical 30-year rate has dipped to 3.13%, but a survey of lenders from Mortgage News Daily found that average rates plunged below 3% for the first time ever earlier this month.

Will rates keep going down? As that classic toy, the Magic 8 Ball, says, “Signs point to yes” — but experts say don’t take ultra-low rates for granted.

The case for even lower rates

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Long-term mortgage rates take their cues from the interest on Treasury bonds. Those yields are so microscopically low that personal finance celebrity Suze Orman said in a recent podcast that “you have to be crazy, if you ask me, to be in bonds at this point in time.”

The yields slid last week and bond prices jumped on reports of rising coronavirus cases in many parts of the U.S. Investors feared that the economy may not be able to recover anytime soon, explains Matthew Speakman, an economist with Zillow.

“This sparked a sell-off in stocks and a flight to the safe haven of bonds — something that normally pushes mortgage rates lower,” Speakman says.

Each day brings alarming new evidence that COVID-19 is spreading rapidly again. The worse things look for the pandemic, the economy and the stock market, the better they look for mortage rates.

In a new forecast, mortgage company Fannie Mae expects average 30-year mortgage rates will keep dropping, to 3.0% by the end of this year and to just 2.9% during all of 2020.

Fannie Mae chief economist Doug Duncan says extremely cheap mortgage rates will continue to please homebuyers — and homeowners looking for refinance savings.

“We … expect the extremely low mortgage rate environment to contribute to historically high levels of refinancing activity as household balance sheets and incomes improve,” Duncan says, in a news release.

During appearances before Congress last week, Federal Reserve Chairman Jerome Powell promised that the Fed would continue to hold its benchmark interest rate near zero as he raised new warnings about the economic threat from the coronavirus. The Fed’s record-low rates are helping to keep mortgage rates in the cellar.

The potential for rising rates

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Freddie Mac also has come out with a new mortgage rates outlook, but it’s not quite as optimistic as Fannie Mae’s.

Though Freddie Mac chief economist Sam Khater says rates “should remain at record lows for the foreseeable future,” the forecast predicts 30-year rates will average 3.4% this year and 3.2% in 2021.

In the near term, we may have reached a turning point for mortgage rates, says Zillow’s Speakman.

“More bad news regarding the uptick in coronavirus cases would likely send rates back downward, possibly to new lows. However, rates could just as easily begin to trend upward again, particularly if key economic data or measures to contain or treat the virus show meaningful improvements,” he says.

That means if you’re thinking about buying a home or refinancing, don’t try to “time the market” and wait for the perfect mortgage rate, because rates could very well go in either direction.

Compare rates from a bunch of lenders, and if you find one that looks remarkably low and would work well for you, apply for the loan and work with the lender to lock the rate — so it doesn’t slip from your grasp.



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