Amid market uncertainty surrounding the coronavirus, mortgage interest rates took a dive—great news for anyone looking to purchase a new home. But rates didn’t just tick down a notch; the 30-year fixed-rate mortgage is now at its lowest ever. In late April rates dropped to 3.23% with an average .7 point paid to the lender. And as of May 28, 2020, rates reached 3.15% with an average .8 point paid to the lender. For the past 4 weeks, they have stayed near this low at 3.24%. Compared with April 2019’s low rate of 4.06%, money is truly cheaper than ever.
How did we get here?
The state of the world has a profound impact on rates, and right now the pandemic is driving economic change. Rates improve during hard times and worsen when relief measures are put in place. While no one can predict rate movement, there are several key factors in our economic recovery that will impact rates.
In mid/late March, the initial spread of the virus made a significant push in lowering rates. If a second wave of COVID-19 hits the country or if there is a delay in vaccine development, we could see another rate decline. Rates may continue to stay low or drop should consumers hold off on spending even as states reopen. Conversely, if we see a vaccine sooner than expected or signs of widespread health and economic recovery, rates will begin floating upward.
Another factor to consider is government intervention. In March 2020 in an effort to stabilize rates, the Federal Reserve began buying $40 billion in mortgage-backed securities from Freddie Mac and Fannie Mae weekly. The goal was to keep credit moving amid the uncertainty of the coronavirus pandemic. Once they stopped purchasing mortgage-backed securities, rates moved upward.
What does it mean for buyers?
In this uncertain time, rates will continue to move to reflect new developments. However, they are not expected to swing up or down erratically. For those considering a home purchase, now is a great time to take advantage of historic lows. When rates are lower, the cost to borrow is less, empowering buyers to get more home for less money. A monthly payment of $2,000 at 4.00% can get you a $520,000 home, while at 3.25% you can afford $570,000*, so it makes sense to take advantage of great rates when you can.
What does it mean for sellers?
With buyers shopping with increased purchasing power, sellers can be optimistic about listing their homes. In today’s low inventory market, the most desirable homes are often won in bidding wars, fetching full or above asking price.
Note: Rate scenario assumes a monthly payment of principal and interest only for a 30-year fixed-rate mortgage, with a 20% down payment. Closing fees, points, insurance and taxes not included. This does not represent a rate quote. 5/26/2020Sources: Freddie Mac, Fannie Mae, HousingWire