The big mortgage rate debate: will rates rise or fall?

Will the lowest mortgage rates ever hold up?

Mortgage rates have plummeted. What else can you say

The average price for a 30-year fixed-rate mortgage was just 2.98% last week.

It’s another record low – the lowest average rate since 1971, the year Freddie Mac first published weekly numbers.

Now the big question for home buyers and refinancers is: How long will the lowest mortgage rates ever last?

Find and lock a cheap rate (May 31, 2021)

Today’s record-low mortgage rates

Mortgage rates are in the ditch. Mortgage prices have continued to fall since 1981. Not every week or every month, but the overall trend is clear.

As a borrower, when considering today’s mortgage rates, here are some things to keep in mind:

  • Prices are actually lower than the headlines suggest. Freddie Mac’s weekly numbers are a trailing indicator. Mortgages at the price of 2.5% were available to the strongest borrowers in May
  • The monthly costs are lower. Compared to November 2018 when interest rates were above 4%, a $ 200,000 mortgage is now $ 225 less per month. Take advantage of our Mortgage calculator to compare your current rate to new funding
  • Apartments are cheaper when prices go down. However, this increases the pool of potential buyers and tends to lead to price increases. According to the National Association of Realtors (NAR), existing home prices rose 2.3% year over year in May
  • Low rates change locking strategies. If you think rates are going to rise in the next few weeks or months, the smart move is to freeze your rate before closing. If you think interest rates will continue to fall, you should leave interest free until settlement

Of course, “historic mortgage rates” have been in the news for months.

So it’s easy to believe that they’re going nowhere – that we’ll be sitting comfortably at 3% forever. (Or at least for the foreseeable future.)

But can the streak really last?

Mortgage rates have been falling for almost 40 years. If there was a high in 1981, then there must surely be a low – a moment when mortgage rates start to rise across the board.

Many think that the turning point is coming soon.

The case for higher mortgage rates to come

There are three main ones Arguments for rising mortgage rates in the near future:

  1. Increased demand for credit With interest rates this low, lenders are inundated with applications. In early July, the Mortgage Bankers Association reported that refinance requests were up 111% while purchase loan requests were up 33%. What if the demand increases? Mortgage rates are rising
  2. An upcoming presidential election – It’s hard to predict what will happen in the November election, let alone how it will affect the mortgage economy. The 2016 elections were followed by an almost immediate rise in interest rates. What is certain is that investors will keep a close eye on the situation over the coming months. If investors predict more economic stability in the future, they will leave the mortgage market and interest rates will rise
  3. Pending foreclosures due to COVID-19 – Earlier this month, ATTOM Data Solutions reported that foreclosure requests were at 15-year lows. For mortgage investors, news like this means low risk and thus a willingness to lend at low mortgage rates. But there are two problems with these numbers. First: The state protection against foreclosure, which kept filings low during COVID-19, will end at some point. Second, the number of foreclosures is delayed by at least 30 days as it takes time for filings to be published. So there will likely be more foreclosures going forward – potentially more risk for lenders and higher interest rates

These are all very real perspectives. We have already seen mortgage rates spike this year as lenders became overwhelmed by the volume and had to stem the tide.

And even experts can’t say what will happen in the post-COVID economy.

Our advice: When you are ready to buy or refinance a home, heed these warnings.

The prices are already lower than ever before. More drops are likely to be incremental at best, and if you wait you may miss your window of opportunity.

Confirm your new plan (May 31, 2021)

The reason for lower mortgage rates

Maybe mortgage rates won’t go up. Due to the COVID-19 economy, there is great uncertainty in the future.

As the argument goes, interest rates were low and falling before the virus broke out. Why shouldn’t they keep falling?

The global supply of capital far exceeds demand. Investors in many countries invest with negative interest rates. Not just low interest rates, but actually negative interest rates below 0%.

Interest rates were low and falling before the virus broke out. Why shouldn’t they keep falling?

As we wrote last summer:

“The same factors that resulted in 3% financing are likely to lead us into the world of 2% mortgages.

“There is a persistent imbalance between investors with cash and people looking to borrow. Cash is everywhere and more of it is likely to come to a mortgage lender near you. “

There is too much supply and too little demand, so the argument for lower interest rates.

And looking ahead, nothing will change. From this point of view, prices are still pointing downwards.

Our advice: As mentioned earlier, it may not be worth risking today’s extremely low rates in hopes of slightly lower rates. If you are ready to buy or refinance, now may be the right time.

However, if you want to take out a loan, you don’t have to move before you are ready.

The coronavirus is the main force in keeping the odds where they are now. And unfortunately that won’t go away anytime soon. So you have some time.

Your next step

Your next step depends on where you are in your funding process.

For those ready to buy or refi a home, it probably makes sense to take advantage of today’s tariffs.

And remember, just because some lenders offer record low interest rates doesn’t mean they all are. So take a look around to find the best deal for you.

Confirm your new plan (May 31, 2021)

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