Mortgage rates drop to near historic low due to concerns over the coronavirus pandemic
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Mortgage rates have fallen to almost record levels, and there is reason to believe that they will fall further in the future.
The fixed-rate 30-year mortgage averaged 3.24% for the week ending May 21, four basis points lower than a week ago, Freddie Mac
FMCC
reported Thursday. It was just above the lowest record set in early May at 3.23%.
For the 15-year fixed-rate mortgage, the average rate fell two basis points to 2.7%. Meanwhile, the variable rate hybrid mortgage indexed over 5 years averaged 3.17%, one basis point lower than last week.
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The rate cut this week was prompted by comments from the Federal Reserve. “Mortgage rates fell today after a serious assessment by the Federal Reserve of the difficult economic path ahead,” said George Ratiu, senior economist at Realtor.com. The central bank lowered its economic forecasts before its meeting last month, according to notes released Wednesday.
The Federal Reserve has said it will keep interest rates low for a long time to help the economy recover from the coronavirus pandemic. But Fed officials have warned that the central bank’s effectiveness in managing the economic impact of the epidemic could be limited if the United States does not solve public health problems.
“Although the stock market has improved in recent weeks, which normally leads to higher mortgage rates, the economic outlook remains uncertain and the seemingly low risk of inflation has kept bond yields under control,” said Zillow
ZG
economist Matthew Speakman.
Historically, mortgage rates have pretty much followed the direction of long-term bond yields, including the 10-year Treasury bill yield.
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This relationship diverged somewhat during the coronavirus crisis.
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While bond yields and mortgage rates have declined during the epidemic, mortgage rates have not declined as much as bond yields suggest. This is largely due to friction in the mortgage industry caused by the massive wave of leniency applications that administrators have received.
With millions of Americans defaulting on their monthly mortgage payments, companies have had to restrict their lending to cope, rather than lowering rates.
However, the difference between bond yields and mortgage rates means that the mortgage industry has some leeway to further cut rates, said Sam Khater, chief economist at Freddie Mac, in his company’s weekly report.
Meanwhile, the quotes that borrowers really see will likely continue to depend on their credit worthiness as long as the U.S. economy remains on fragile ground, experts have said.
“Large borrowers looking for a direct loan are charged at significantly lower rates than less creditworthy borrowers, which translates into a range of rates that tells a wider story than the average,” said Speakman.