The threshold many thought could never be crossed, has been crossed.
The average interest rate for a 30-year mortgage dropped below 3%, as Freddie Mac reported yesterday, settling in at 2.98% for the week that ended July 16th. For a 15 year loan the average rate was 2.58%. Once again interest rates have reached the lowest rates ever recorded in the fifty years that Freddie Mac has been tracking the data.
As expected, the continued decline has had the corresponding increases in demand. Even leading up to last week, when rates were hovering just above the 3% mark, refinance applications saw an increase of 12%, which is 107% higher than they were a year ago, according to a report from the Mortgage Bankers Association. Purchase applications did see a small decrease, of 6%, compared to the week before. But after seeing a 33% surge the week before, it is most likely due to a post-holiday slowdown. Compared to one year ago, purchase applications were 16% higher and it is the eighth consecutive week they have been higher than the same week a year previously.
The demand from buyers was already high before the Covid pandemic slowed down activity, but with such low interest rates even those who were thinking of waiting it out for another year are coming off the sidelines to try and lock in a low rate. Of those purchase applications, only 3% were for an adjustable rate mortgage.
However, Sam Khater, Freddie Mac’s Chief Economist, cautions against becoming overly optimistic saying in the statement, “…the countervailing force for the economy has been the rise in new virus cases which has caused the economic recovery to stagnate, and this economic pause puts many temporary layoffs at risk of ossifying into permanent job losses.”
The real test will be a few months from now when we have a clearer picture of whether or not businesses and retail sales will return to normal. Could mortgage rates go below 2%?