Blake Nissen | The Boston Globe via Getty Images
If there’s a head start on all the pandemic-induced uncertainty in the economy, it’s the bottom-line mortgage rate bond for home owners and buyers.
The average rate on the popular 30-year fixed has just dropped to another all-time low: 2.87%, according to Mortgage News Daily.
That’s about one percentage point lower than a year ago. And that’s just the average. Some borrowers get even lower rates.
“Right now, groups of loans are being sold with average rates of 2,625%, which means that some people get rates of between 2,375 and 2.5%,” said Matthew Graham, COO of Mortgage News Daily. “While they are likely to involve some closing costs, that is still crazy.”
Mortgage rates follow the yield of the 10-year US Treasury, which fell to the lowest level since March on Thursday. However, it is not an exact marriage, as the two have recently separated due to all the strange market conditions caused by the coronavirus: the Federal Reserve began buying more mortgage-backed bonds to keep the market afloat and at the same time Time instituted a financial rescue mortgage for borrowers financially affected by the crisis.
All the uncertainty makes mortgage lenders and investors nervous. They worry that people will lose their jobs and fail to make their monthly payments, or that the economy will crash again, hurting the property market overall.
Mortgage rates are actually based on what investors will pay for the mortgage-backed bonds. Investors need some sort of return, or they won’t buy those bonds. That is why the rates can only be so low. It’s about whether the bonds exist or not and what the demand for those incredibly low bonds would be.
“For a variety of reasons, it makes no sense for the mortgage market to begin to depend on a new lower-rate mortgage bond unless you are confident that the bond will remain relevant,” Graham said. “We recently saw the introduction of a new mortgage bond coupon in April. It technically allows rates to drop to 2.25% over the 30-year time frame. That’s as low as possible without a serious double-dip recession driving a second wave. of profit in the bond market, entirely possible, but not yet a guarantee. ”
Investors also want to be able to get the yield on the bonds they buy for a long time to make their investment worthwhile, so they don’t want people to refinance too quickly. The volume of refinancing has been incredibly strong this year, with requests increasing last week by 122% annually, according to the Mortgage Bankers Association.
So yes, mortgage rates are at an all-time low and could go even lower, especially if the U.S. economy shuts down again, unemployment rises, and investors rush further into the bond market. Could that 2.25% limit be tested? Absolutely, but the detrimental economic conditions necessary for that would likely keep potential buyers away from an investment as big as a house. For current homeowners looking to refinance, it might be time to start buying rates once again.
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