Mortgage rates have hit a record-low once again. According to Freddie Mac, the average interest rate on 30-year, fixed-rate mortgage loans is now just 2.80%, the lowest point recorded since 1971 — when the company began tracking rates.
It’s just the latest drop in a long string of decreases in 2020. At the start of the year, the average rate was 3.62%. On a $200,000 loan, that’s a difference of $90 per month and more than $32,000 in interest over the course of 30 years.
According to Sam Khater, chief economist at Freddie Mac, the low rates offer big opportunities for existing homeowners.
“Mortgage rates remain very low, providing homeowners who have not already taken advantage of this environment ample opportunity to do so,” Khater says. “Mortgage rates today are, on average, more than a full percentage point lower than rates over the last five years. This means that most low- and moderate-income borrowers who purchased during the last few years stand to benefit by exploring refinancing to lower their monthly payment.”
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Given today’s 2.8% rate, about 18.5 million homeowners could reduce their interest rate by at least 0.75%, according to data from analytics firm Black Knight. The average homeowner would save about $304 per month.
At the purchase level, today’s low rates aren’t spurring as much demand as you’d expect. Though applications to buy a house are up 26% over the year, they actually dropped over the week, falling 2% from the week prior.
The dip is likely due to ever-dwindling supply, which now sits at its lowest level ever. The U.S. currently has just a 3.3-month supply of available homes (a balanced market is typically around six months).
The shortage has caused home prices to rise, particularly on entry-level properties, making it harder and harder for first-time buyers to make their move.
As Frank Nothaft, chief economist at property data firm CoreLogic, puts it: “The imbalance between homebuyer demand and for-sale inventory is particularly acute for lower-priced homes.”
Prices on the lowest price tier increased 8.6% over the last year, according to CoreLogic’s most recent data. Across all price tiers, the jump was just 5.9%.