Freddie Mac predicts that mortgage rates will fall even further

Mortgage rates remain near historic lows. But state-sponsored mortgage finance company Freddie Mac predicts they will decline even further.

“While mortgage rates have been flat for the past week, there is scope for rate cuts,” wrote Freddie Mac in his weekly mortgage rate survey.

The average interest rate on a 30-year fixed-rate mortgage was 3.33 percent and the average for a 15-year fixed-rate mortgage, which is commonly used for refinancing, was 2.77 percent. Both are around 80 basis points below the previous year’s figure.

This is in large part due to the decline in stock markets, driven by uncertainty about the duration and severity of the impact of the novel coronavirus on the economy.

Nervous investors looking for safer investments, investing money in government bonds and mortgage debt – much of which is backed by Freddie Mac and his government-funded sister company Fannie Mae. So safety-hungry investors are willing to accept lower returns, which drives up interest rates on bonds and mortgages.

With bond and mortgage rates responding to similar stimuli, 10-year US Treasury bond yields and mortgage rates tend to move in lockstep. But, as Freddie Mac noted, yields on a 10-year government bond have fallen more than a full percentage point this year, while mortgage rates have fallen only a third of a point.

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“As the financial markets continue to recover, we expect mortgage rates to fall in the second half of 2020,” said Freddie Mac.

One of the reasons mortgage rates haven’t dropped as dramatically as bonds are because so many people were rushing to take advantage of the low rates that lenders couldn’t handle the high volume of applications. rates rose to slow the flow. This could change soon.

According to the Mortgage Bankers Association, the number of mortgage applications fell 18 percent last week from the previous week. And a worrying sign of home sales were purchase requests, which fell 33 percent year over year.

But in the midst of an economic crisis, even the lowest interest rates ever won’t benefit many. Those who have lost their jobs can – and cannot – get a loan more than 16 million Americans have become unemployed within three weeks.

In addition, there are mortgages harder to come by for those with less than outstanding credit scores because investors take risks. The combination of dizzying job losses and emergency ordinances that blocked foreclosures during the crisis has led investors to insist on much higher credit ratings on mortgages issued through first home purchase programs through the Federal Housing Administration and Veterans Affairs.

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