Cash-strapped home buyers received a bit of relief this week when mortgage rates tumbled to a new all-time low—making those monthly mortgage payments just a bit cheaper.
The double whammy of the coronavirus pandemic and the economic downturn have led to the lowest mortgage rates in history. They fell to an average of just 2.86% for the most common types of loan, the 30-year fixed-rate mortgage, in the week ending Sept. 10, according to Freddie Mac. The previous low was 2.88% for the week ending Aug. 6.
“It’s good news for buyers who are in the market," says realtor.com®'s chief economist, Danielle Hale. "It’s going to make monthly payments lower than they otherwise would be. Buyers need that right now, because prices are rising.”
Even amid a health and economic crisis, median home list prices rose 10.8% compared with last year in the week ending Sept. 5, according to realtor.com data. Nationally, the median home price was $350,000 in August—a record high.
While a percentage point here or there may not sound like much, it can determine whether aspiring buyers can afford homeownership. It can also add up to some very big savings. Even a single percentage point difference has the potential to shave more than $100 off a monthly mortgage payment and can even result in tens of thousands of dollars of savings over the life of a 30-year loan in some cases. (The exact amount will vary based on the rate and size of the loan.)
Last year, rates were about 70 basis points higher, at 3.56% for a 30-year fixed-rate loan in the week ending Sept. 12, according to Freddie Mac. (A basis point is equivalent to 0.01%.) Investors have been buying up more mortgage-backed securities, widely considered a safer investment, in response to the pandemic, and that's pushed mortgage rates lower.
That doesn't mean folks should hold their breath, expecting rates will continue to fall.
"In order to see rates go down much further, we'd have to see the economic recovery slow down," says Hale. While she doesn't expect that to happen, she also doesn't anticipate rates shooting up anytime soon.
"They'll stay low," she adds.
The Mortgage Bankers Association predicts rates won't climb past the the mid-3% range over the next two years. It anticipates rates could eventually reach the 3.65% range only toward the end of 2022.
This offers some relief to buyers, who are having to pay more in a competitive market, says MBA economist Joel Kan.
"The low rates are helping, maybe they can afford a little bit more," he says.