A Historic Decline of US Mortgage Rates Reaches Below 3%

29 Sep 2020

According to Freddie Mac “ The 15 year fixed rate mortgage dropped to 2.48%”. 

In the past five weeks, for the first time ever, mortgage rates have reached an all-time record low below 3%. The average 30 years fixed mortgage slipped to a historic low of 2.48%.

As COVID 19 continues to disrupt the economy globally, “a fall in the interest rates has driven a spurring demand for potential home buyers” said Sam Khater, chief economist at Freddie Mac. The sudden spike in the demand of home buyers is putting pressure on lenders and their staff.

Since November 2018, when it was 4.94%, it has tumbled nearly two percentage points. The rates have dropped due to Federal Reserve lowering rates in response to COVID-19. 

How it is going to affect home purchases

A significant drop in rates means less money to be paid as interests. This fall has turned out to be a great opportunity for buyers waiting to clock up the best deal for a long while. Borrowers are more propelled to take this opportunity to either purchase or refinance the rates.

While a greater percentage of people are taking advantage of the fall in prices, not all people are able to take advantage of this given the current pandemic. The new rise in the coronavirus cases has caused economic recovery to stagnate, and this halt has put many layoffs that risk into permanent job losses. 

A surge in the application for refinancing

The falling rates have led to the soaring of refinancing of home loans. Demand is strong but it is also influenced by economic uncertainty. According to an index from the Mortgage Bankers Association, the surge in refinancing is reaching levels that were last observed in November 2016. 

Home purchases always will be a significant investment in the lifetime of the buyer. The current decline in rates may have greased the wheels of the home buyers, which is the result of the global pandemic is also seen from a different angle by many. With the continuous weakening of the economy and the job market, it becomes difficult to envision the scenario lying ahead.

A larger population is cutting their monthly housing payments to save the extra cash for investing somewhere. A decline in the rate could save a fortune for homeowners in monthly payments and also over the course of the loan. The saving could be more in the case of higher coastal areas. 

The lingering tensions and growth concerns have fuelled the global bond rally. Weak job growth is also on the mind of people, which raises expectations that the rate cut will help prop up financial markets. New home demands may prep up the real estate industry, leading to employment in construction.

The expectations by lowering rates are supposed to work, in favour of bracing up of rare sensitive sectors of the economy. According to analysts and economists, it is too early to predict if the decision will result in a sustainable output or not. However, the efforts of the Federal in supporting the economy are seen to have an effect.

People who were considering refinance in their near future should grab the opportunity, as there is no guarantee whether it will drop further from where they are now. 

What does this mean for jobs?

The continuous lingering of the scare of the pandemic has left us all homebound for several weeks now. Taking care of our physical health is equally important as it for our financial health. And our job stability is going to provide us with that.

The move to cut mortgage rates has been designed to protect and restore businesses, and in turn, it will serve as the key to the employment of individuals.

Ways in which the Federal Reserve rate cut affects your wallet

It affects your savings and CD rates – Savers benefit from rate hikes and take a hit when the rates are cut. This is generally because banks tend to lower the annual percentage yields (APYs) that they offer on consumer products such as savings account. 

Yields on the certificate of deposit (CD) generally fall when the rates are cut, however broader macroeconomics conditions also have an influence on them, such as the 10 year Treasury yield.

The FED impacts home equity line of credit.- You’ll feel more influence from the Fed. Interest rates on the home equity line of credit are often related to the prime rate, meaning those rates will fall if borrowing costs are lowered.

Fed impacts auto loan rates-The rate cuts also impact auto loans which might bring you some relief temporarily. However, auto loans are still tied to the prime rate.

Fed affects credit card rates – The lowering or raising of the Fed rates impacts the benchmark rate. The prime rate typically falls or rises with it. 

“The short term interest rates gets affected by any changes by the Federal Reserve. This, in turn, affects the rates that people pay on credit cards” according to Gus Faucher, the chief economist at PNC Financial Services Group. 

In addition, the pandemic is peaking in with spike in cases every single day. Ultimately the coming time will decide and the course of the virus will dictate what will be the housing market and economy.

Read More: How To Refinance Your Mortgage?