The average cost of a 30-year fixed-rate mortgage slipped to a new record low of 2.86 percent this week, according to Freddie Mac. That’s down from last week’s average of 2.93 percent, and two basis points lower than the previous record of 2.88 percent, which was set in early August.
With the U.S. economy in recession because of the coronavirus pandemic, mortgage rates have plunged to record lows. In a separate survey of rates by Bankrate, the average 30-year fixed-rate mortgage rose to 3.11 percent, up one basis point from last week’s record low of 3.10 percent. The gap with Freddie Mac’s number is because Bankrate’s figure includes points and origination fees averaging 0.33 percent, while Freddie’s number excludes those costs. Freddie Mac said the its average is accompanied by an average of 0.8 of a point.
“Mortgage rates have hit another record low due to a late summer slowdown in the economic recovery,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “These low rates have ignited robust purchase demand activity, which is up 25 percent from a year ago and has been growing at double-digit rates for four consecutive months. However, heading into the fall it will be difficult to sustain the growth momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity.”
Even with rates at record lows, mortgages aren’t easy to get. Lenders have tightened the availability of credit, the Mortgage Bankers Association said Thursday.
“Mortgage credit supply fell to its lowest level since March 2014, driven by a reduction in supply from both conventional and government segments of the market,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement.
Record drop in economic activity drives rates down
In a U.S. economy hit hard by COVID-19 shutdowns, bright spots are rare. The U.S. economy suffered its most dramatic downturn since at least the 1940s in the second quarter, the Commerce Department reported. Gross domestic product contracted by 9.5 percent from the first quarter to the second quarter, an annual pace of 32.9 percent.
Those sort of dreary numbers have spurred the Federal Reserve to prop up the real estate market by buying mortgage-backed securities. But, mortgage experts polled by Bankrate are split about where rates go from here, with 36 percent predicting a rise in the coming week.
“Inflation expectations compared to the 10-year Treasury note yields diverged sharply, which pushes real rates to record lows. With the shift in the fundamental bias to rates increasing, expect surprise moves to higher rates before the end of the year,” said Les Parker, CMB, managing director at Transformational Mortgage Solutions in Jacksonville, Florida.
Meanwhile, 36 percent of experts foresee another drop.
“Down,” said Joel Naroff, president and chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Is the economic reality setting in? Nah.”