The Federal Home Loan Mortgage Corp. (Freddie Mac) announced earlier this week that, according to its Primary Mortgage Market Survey (PMMS), the 30-year fixed-rate mortgage averaged 2.67 percent, which is the lowest rate in the survey’s history which dates back to 1971.
“The housing market continues to surge higher and support an otherwise stagnant economy that has lost momentum in the last couple of months,” said Sam Khater, Freddie Mac’s Chief Economist. “Mortgage rates are at record lows and pushing many prospective homebuyers off the sidelines and into the market. Homebuyer sentiment is sanguine and purchase demand shows no real signs of waning at all heading into next year.”
The survey also showed that the 15-year fixed-rate mortgage averaged 2.21 percent (down from last week where it was 2.26 percent and from a year ago pre-pandemic, when it averaged 3.19 percent). According to Freddie Mac, the survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.
So, other than the notion that prospective homebuyers may see this as a reason to make a move to purchase, what does a low mortgage rate actually mean? First off, a mortgage rate is the rate of interest charged on a mortgage. The rate is determined by the lender. It can be fixed or variable, and is largely based on a credit profile.
For prospective homebuyers, it could definitely mean a savings in money over time. According to Housewire.com, lower mortgage rates can mean a lower monthly mortgage payment, less paid in interest over time, and even a bigger home-buying budget. “It’s not all perks, though. Lower mortgage rates typically mean more competition, too. As more buyers come out of the woodwork, you might face more bidding wars and higher home prices as a result,” said writer Aly J. Vale. “If you do buy during this time, make sure you lock your interest rate to prevent it from rising before you close. Most rate locks last between 30 and 60 days, though you may be able to get a longer one if your lender is really backed up.”
For the real estate industry, lower mortgage rates could mean busier agents, as more clients look for a new place to live. Because Freddie Mac predicts this low rate could continue into – and maybe even through – 2021, this could mean a hectic time for real estate agencies.
However, an article on Forbes.com shows “a potential drawback that may manifest itself once interest rates reverse course and start to climb back up again” – less mobility in the housing market.
“When this happens, homeowners who had bought their residences in the current low-rate environment might not have much of an incentive to sell. If they move, home prices have probably gone up over the same time too and now their monthly payment is going to be more expensive,” says Ali Wolf, chief economist at real estate data and advisory firm Meyers Research. “You’re going to then see a lot less mobility in the housing market.”
Dima Williams of Forbes.com adds: “Less mobility would likely translate into sustained home shortages and affordability challenges, unless builders meet demand, which they have struggled to achieve for years now. Still, today’s low rates are benefiting buyers and, thus, promoting confidence in the housing market, a sentiment that typically spurs home builders’ operations.”