The average U.S. mortgage rate for a 30-year fixed loan fell four basis point this week to 2.67% – the lowest rate in the Freddie Mac’s Primary Mortgage Market Survey’s near 50-year history. This week’s mortgage rate broke the previous record set on Dec. 3 and is the first time the survey has witnessed it fall below 2.7%.
“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,” Khater continued.
The average fixed rate for a 15-year mortgage also fell last week to 2.21% from 2.26%.
A Tuesday analysis from Fannie Mae’s Economic and Strategic Research group predicted rates would hit their trough at 2.7%, and since the 10-year Treasury yield has remained at or above 90 basis points through the beginning of December, mortgage spreads are continuing to compress.
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“While there may be some resistance to the 10-year yield consistently pushing above 1% in the coming months, with vaccination efforts and subsequent stronger economic growth, we expect Treasury yields to move higher over the next year,” the Fannie Mae report said.
Last week, Khater noted mortgage rates managed to retain their record low numbers despite higher Treasury yields – resisting a typical correlation.
A Wednesday statement from the Federal Open Market Committee revealed that the Federal Reserve plans to keep interest rates low until labor market conditions and inflation meet the committee’s standards. Fed Chairman Jerome Powell said to get inflation back to 2% though is going to “take some time.”
Overall, Fed purchases have helped to drive mortgage rates and other loan interest rates to the lowest level on record by boosting competition for bonds, which compresses yields.
With the release of the Fed’s latest intentions, Mortgage Bankers Association chief economist Mike Fratantoni said the MBA now expects the Fed to maintain these low rates at the zero level for years to come.
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