- The average rate of 30-year fixed mortgages reached record levels in 2020, and fell below 3% for the first time in July, according to Freddie Mac.
- In 2021, experts predict, the 30-year average fixed rate will increase slightly, reaching somewhere between 3.2% and 3.4% in the new year.
- Weekly averages are expected to fluctuate in the 2% range for a few more months, breaking the 3% limit in the spring, industry veterans told Insider.
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Low mortgage rates have contributed to an active housing market in recent months, with markets across the country posting skyrocketing home prices.
Freddie Mac, the popular loan company that searches for weekly mortgage data, has reported low fixed rates of 30 years since the pandemic began.
In July, for the first time, Freddie Mac said the 30-year average fixed rate fell below 3% to 2.98% – a 0.83% drop from the same period last year.
Since then, Freddie Mac’s weekly measurements have remained below 3%, reaching 2.66% last month. However, after Democrats won two Senate seats in Georgia to take control of the White House and Congress, the average rate rose to 2.79% on Jan. 14 – the highest rate measured in two months.
(The 30-year fixed rate, which is the most popular mortgage product, is a benchmark for the industry.)
Rates are expected to fluctuate in the 2% range for a few more months, however, according to Realtor.com’s chief economist Danielle Hale and New York-based mortgage executive Melissa Cohn.
The record low days are probably behind us
Industry experts believe that the rates will rise – at least slightly – thanks to the distribution of the COVID-19 vaccine and the unified democratic control of the White House and Congress, which increases the chances of significant government spending and stimulus. These measures, in turn, are expected to raise mortgage rates.
The 30-year average fixed rate is expected to fall between 3.2% and 3.4% by the end of 2021.
But the increase is unlikely to drastically affect the bustling home sales market, experts predict, since those numbers are still lower than pre-pandemic rates.
How long will rates be below 3%?
Attention, homeowners, potential homeowners and those looking to refinance at low rates: Realtor.com chief economist Danielle Hale told Insider that she predicts that Freddie Mac’s 30-year fixed rate will break the 3% limit on late spring.
“We hope that this year the housing market will have a very different spring season than last year – which is probably a big understatement,” she said, referring to when the pandemic started shutting down the sector in March, April and May 2020.
Industry leaders have done a good job, taking virtual or socially distant exhibitions, negotiations and transactions to align with COVID-19 security regulations, she continued. And as the buyer’s appetite for single-family homes, which has increased as the pandemic has increased demand for more square footage and outdoor space, remains robust, busy lenders will have more room to maneuver to raise rates.
Macroeconomic factors, like the stimulus expected from the Democratic government, can also add upward pressure on rates.
“We have Biden, we have a Democratic-led Senate, and that means economic stimulus that means inflation and higher interest rates,” Melissa Cohn, executive mortgage banker at William Raveis Mortgage, told Insider.
Rates are expected to rise above 3% again in the spring
Like Hale, Cohn believes that the 30-year fixed rate is likely to break the 3% limit in the spring.
It points to a 10-year increase in Treasury yield, which generally indicates that mortgage rates will follow.
The day after the Democrats’ turn in the Senate earlier this month, the 10-year Treasury yield rose above 1% for the first time since March and the average 30-year fixed mortgage rate rose to 2.86%, the report said. Yahoo Finance.
“There are mixed expectations about how much the rates will rise this year. Some analysts expect the yield on 10-year bonds to rise to 2% by the end of the year, and others expect it to reach around 1.50%. In any event, we can expect mortgage rates to exceed the 3% mark sometime this spring, “Cohn wrote in his recent newsletter. “To put that in perspective, mortgage rates averaged 3.625% in January 2020 – and at that time, we thought it was a great deal!”