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Mortgage

Mortgage rates fall to another record low at 2.71%

But rapidly increasing home prices may be eroding the benefits of those low rates

The average U.S. mortgage rate for a 30-year fixed loan fell one basis point this week to 2.71%, Freddie Mac said in a report on Thursday – the lowest rate in the survey’s near 50-year history. This week’s rate broke the previous record set on Nov. 19.

The average fixed rate for a 15-year mortgage also fell last week to 2.26% from 2.28%.

With this week’s record drop, there have now been 18 consecutive weeks when average mortgage rates have been below 3%. This also marks the third time in the survey’s history that rates have fallen below 2.75%, and the 14th time this year rates have broken their own record.

According to Sam Khater, Freddie Mac’s chief economist, despite these persistently low mortgage rates, home sales are facing significant challenges.

“While homebuyer appetite remains robust, the scarce inventory has effectively put a limit on how much higher sales can increase. Unfortunately, the record low supply combined with strong demand means home prices are rapidly escalating and eroding the benefits of the low mortgage rate environment,” Khater said.

Reports of even lower rates circulated on Wednesday after United Wholesale Mortgage announced it was offering mortgage rates between 1.99% and 2.5% on FHA loans through its Conquest Program. Those rates will be available on FHA purchase mortgages, FHA rate and term refinances, and FHA streamline refinances, but not all borrowers will qualify for the products.

Into the final month of the year, economists are predicting low rates to hold out, but what 2021 will look like for the rate market is still up for debate.

On Wednesday, 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.

“While we think the economy, the job market, and distressed households and businesses need the support such a package could bring, the size of the debt and the required debt issuance needed to finance these supersized deficits, will likely put upward pressure on longer-term rates,” Fratantoni said.

This means a steeper yield curve in 2021, and since rates are priced off the longer end of the curve, the most likely outcome is somewhat higher interest rates.

If rates remain as low as they are, Fratantoni estimates borrowers to ride the current refinance wave for even longer. A recent report from Black Knight estimated at current rates, 19.4 million “high quality” candidates are up for refinance savings eligibility.

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