The average cost of a 30-year fixed-rate mortgage rebounded ever so slightly to 2.87 percent this week, up from last week’s record low of 2.86 percent, according to Freddie Mac.
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 fell to 3.09 percent, a new record low. 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.
“Despite the recession, the very low mortgage environment has spurred many first-time homebuyers to jump into the real estate market,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “In August, first-time homebuyer activity rose 19 percent from July to the highest monthly level ever for Freddie Mac. The first-time homebuyer driven rebound in the housing market has come at a critical time for the economy.”
Even with rates at record lows and purchasing activity on an upswing, mortgages are getting more difficult to secure. Lenders have tightened the availability of credit, the Mortgage Bankers Association said last week.
“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. The Fed announced yesterday it will hold interest rates steady at near zero and indicated plans to keep them there for at least three more years.
Mortgage experts polled by Bankrate largely expect rates to remain the same next week.
“With little expected out of the Fed this week, the outlook for rates should be steady as she goes,” said Gordon Miller, owner of Miller Lending Group, LLC in Cary, North Carolina. “As always, be careful with the closing costs associated with some of the microscopic rate quotes you may notice.”