Mortgage rates swooned to near-historic lows this week as concerns about the long-term effects of the coronavirus pandemic on the U.S. economy mounted.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average sank to 3.24% with an average 0.7 point. (Points are fees paid to a lender equal to 1% of the loan amount and are in addition to the interest rate.) It was 3.28% a week ago and 4.06% a year ago. The 30-year fixed rate set an all-time low of 3.23% in late April.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from 125 lenders across the country to come up with national average mortgage rates. It uses rates for borrowers with flawless credit scores. These rates are not available to every borrower.
The 15-year fixed-rate average slipped to 2.7% with an average 0.7 point. It was 2.72% a week ago and 3.51% a year ago. The five-year adjustable rate average dipped to 3.17% with an average 0.4 point. It was 3.18% a week ago and 3.68% a year ago.
"Mortgage rates fell to new lows this week, as broad market uncertainty continues to keep downward pressure on rates," said Matthew Speakman, a Zillow economist. "Even as the stock market has improved in recent weeks — normally prompting an upward move in mortgage rates — the still-uncertain outlook for the economy and seemingly low risk of inflation has kept bond yields in check, with mortgage rates following suit."
The yield on the 10-year Treasury moved slightly higher to 0.73% on Monday on news of a potential vaccine for the novel coronavirus. But then it fell back to 0.68% by Wednesday. Mortgage rates tend to follow the same path as long-term bonds, but that has been less the case lately.
"Despite recent improvements, rates are still not nearly as low as the bond market would suggest they should be," Speakman said. "This is explained — in part — by the tight lending restrictions in the mortgage industry. Borrowers with great credit who are seeking a straightforward loan are being quoted at significantly lower rates than less creditworthy borrowers, resulting in a range of rates that tells a broader story than just the average. Looking ahead, it's unlikely that this dynamic of low overall rates and a wide range of quotes will change until there is more substantial progress with the coronavirus and broader economy."
The Federal Reserve released the minutes from its April meeting this week, which provided a bleak assessment of the difficult economic path forward. Even as some states begin relaxing coronavirus shutdowns, the Fed remains concerned about how bankruptcies and unemployment will cause lasting harm to the economy.
"Most states eased quarantine restrictions this week, providing a much needed breath of fresh air to consumers and businesses struggling with the past 10 weeks of shutdown," said George Ratiu, senior economist at Realtor.com. "The number of unemployment insurance claims soared by another couple million, likely pushing the unemployment rate for May over 20%. The next two-to-three weeks will provide a litmus test for the strength of the recovery, as business activity moves back into a tentative sense of normal."
Bankrate.com, which puts out a weekly mortgage rate trend index, found nearly all of the experts it surveyed expect rates to remain about the same in the coming week.
"Rates should remain rangebound simply based on current economic conditions," said Jim Sahnger, mortgage planner at C2 Financial in Palm Beach Gardens, Florida. "Stocks seem to be oblivious to unemployment and the damage inflicted as the S&P is up nearly 35% since the lows of March as the slightest hint of a medical breakthrough takes them higher. Rates are at phenomenal levels and many mortgage brokers are quoting scenarios in the [2% range] for loans."
Meanwhile, mortgage applications dropped off last week even as purchase activity continued to pick up. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 2.6% from a week earlier. The purchase index moved higher for the fifth week in a row, rising 6%, and was less than 2% lower than it was a year ago. The refinance index tumbled to its lowest level in more than a month, falling 6%, but was 160% higher than it was the same time last year. The refinance share of mortgage activity accounted for 64.3% of applications.
"The combination of record-low mortgage rates, strong pent-up demand from before the pandemic, and more states easing stay-at-home restrictions is leading to an encouraging turnaround for the housing market," said Bob Broeksmit, MBA president and CEO.
“With rates expected to remain low, refinance opportunities will continue to provide economic relief to the many households looking to reduce their monthly payments.”