Mortgage rates are falling, but how low can they go?

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The 30-year fixed-rate mortgage slid 7 basis points this week to 3.7 percent, and they’ve been on a mostly downward track for months. The question for borrowers, especially those looking to refinance their mortgages, is how low can they go?

If history is any indicator, not much lower. A record low was reached on Dec. 5, 2012, when the 30-year rate dropped to 3.5 percent, according to Bankrate’s national survey of mortgage lenders. That’s just 20 basis points away from today’s rate.

As rates plunge, it’s worth looking at the factors influencing today’s loan costs, such as the pace of economic growth and the Fed’s monetary policy, and whether they will persist. Greg McBride, CFA, chief financial analyst at Bankrate, says a wild-card influence is the coronavirus outbreak that was declared a global emergency by the World Health Organization on Thursday.

“We have a slow-growth economy with low inflation, which breeds low interest rates. Layer on top of that the concerns about coronavirus and how that might detract from growth even more, and you have a recipe for the downtrend in bond yields and mortgage rates,” says McBride.

Experts caution against overreacting to worries about coronavirus. Robert Johnson, professor of finance at Heider College of Business, Creighton University, urges investors to think twice before making portfolio adjustments.

“History shows that many retail investors tend to overreact to events like the coronavirus. Whatever the crisis du jour (Brexit, North Korea, the killing of Iranian General Soleimani, Greek debt crisis or the debt ceiling crisis), retail investors most often lose when they panic,” Johnson says.

(Bankrate polls experts weekly on the direction of mortgage rates for the coming week.)

Finally, a sluggish housing market with low inventory is also doing its part to keep rates low. Last month, pending home sales fell to 4.9 percent, according to the National Association of Realtors, or NAR. All four major regions saw a downturn, with the south getting the hardest hit.

“Due to the shortage of affordable homes, home sales growth will only rise by around 3 percent,” says Lawrence Yun, chief economist at NAR, in a statement. “Still, national median home price growth is in no danger of falling due to inventory shortages and will rise by 4 percent. The new home construction market also looks brighter, with housing starts and new home sales set to rise 6 percent and 10 percent, respectively.”

Although signs point to steady or possibly falling rates, borrowers should resist trying to time the market. As the coronavirus proves, unexpected events can impact U.S. markets and thus impact rates, for better or worse.

In other words, if you see a great rate — be sure to shop multiple lenders — and if the loan fits your needs and budget, grab it.

This story was corrected in the second paragraph to show the all-time low for Bankrate’s data as Dec. 5, 2012.

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Written by
Natalie Campisi
Mortgage reporter
Natalie Campisi is a former mortgage reporter at Bankrate.
Edited by
Senior mortgage editor
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