The average U.S. mortgage rate for a 30-year fixed loan fell one basis point this week to 2.66% – the lowest rate in the Freddie Mac’s Primary Mortgage Market Survey’s near 50-year history. This week’s mortgage rate broke the previous record set on Dec. 17.
With this week’s record drop, there have now been 20 consecutive weeks when average mortgage rates have been below 3%, and the 16th time this year rates have broken their own record.
The average fixed rate for a 15-year mortgage also fell last week to 2.19% from 2.21%.
“The housing market is poised to finish the year strong as low mortgage rates continue to fuel homebuyer demand and refinance activity,” said Sam Khater, Freddie Mac’s chief economist. “Moving into 2021, we expect rates to hold steady but the key driver in the near term will be the trajectory of the COVID-19 pandemic and the execution of the vaccine.”
In a tumultuous year, months of record low rates made housing a bright spot for the economy. According to First American’s Potential Home Sales Model, historically low rates significantly drove the housing rebound from April through October.
With just one week of mortgage rates left to report in 2020, economists and organizations alike have weighed in on what they expect 2021’s rate landscape to look like.
Mark Fleming, chief economist at First American, estimates mortgage rates in 2021 will range from 2.8% to 3.3% and boost house-buying power while keeping purchase demand robust.
In early December, Mortgage Banker Association’s Senior Vice President and Chief Economist Mike Fratantoni said fiscal policy will play an important role in determining the direction of interest rates in 2021.
Following the release of the Fed’s intention to keep short-term rates at zero for the foreseeable future, Fratantoni said the MBA fully expects the Fed to maintain low interest rates at the zero level bound for years to come.
Frank Nothaft, chief economist at CoreLogic, expects initial rates on ARMs will remain low, and 30-year fixed-rate loans are likely to remain below 3% during early 2021 and average about 3.1% during the next two years.
According to Nothaft, these low rates will provide an excellent opportunity for families with good credit to buy or refinance homes and estimates that there will be about 20 million home mortgages outstanding at the start of 2021, with a contract interest rate of 4% or higher.
Though rates already broke Fannie Mae’s Economic and Strategic Group’s trough of 2.7% – the GSE predicts that if economic growth does begin to accelerate, it is possible that inflationary expectations could also rise substantially, resulting in a significant jump in longer-term interest rates.