The average U.S. rate for a 30-year fixed mortgage was 3.33% this week, matching the prior week, according to Freddie Mac.
The rate remains 4 basis points away from the all-time low of 3.29% set in the first week of March. Based on the 10-year Treasury yield, a benchmark for home-loan rates, financing costs could be headed lower, said Sam Khater, Freddie Mac chief economist.
“There is room for rates to move down,” Khater said. “This year the 10-year Treasury market has declined by over a full percentage point, yet mortgage rates have only declined by one-third of a point. As financial markets continue to heal, we expect mortgage rates will drift lower in the second half of 2020.”
The securities market, including Treasuries, is being supported by the Federal Reserve’s bond-buying program resurrected to bolster the availability of credit – just as it did during the financial crisis more than a decade ago.
The Fed revived its so-called quantitative easing, or QE, program on March 15 to prevent the type of credit crunch that devastated the mortgage industry more than a decade ago. Last week, the average U.S. fixed rate dropped 17 basis points, a sign the Fed’s plan is working.
“That drop reflects improvements in market liquidity and sentiment,” Khater said last week.
Typically, mortgage rates stay within a predictable range above the 10-year Treasury yield. Between 2015 and 2019, the average difference was 1.7%, according to HousingWire calculations using the Freddie Mac rate and a weekly average for Treasuries. When the margin rises above that, it means lenders are nervous.
Last week, the difference was 2.68%, the highest since the financial crisis, as lenders added what’s known as a risk premium amid the economic turmoil caused by the COVID-19 pandemic.
The average 15-year fixed-rate mortgage is 2.77% this week, down from 2.82% last week, and the average rate for a 5-year Treasury-indexed home loan was 3.40%, unchanged from last week, Freddie Mac said.