Mortgage rates fall — but Americans shouldn’t bet on interest rates going much lower

0
25
Mortgage rates fall — but Americans shouldn’t bet on interest rates going much lower


Mortgage rates dipped a bit over the past week, as investors
sought a safe haven amid volatile markets and concerns about the economy. But
the era of persistently falling rates has likely passed, which is bad news for
home buyers.

The 30-year fixed-rate mortgage averaged 2.73% for the week ending Jan. 28, down four basis points from the week prior, Freddie Mac
FMCC,
+2.44%

reported this week.

The 15-year fixed-rate mortgage fell one basis point to an average of 2.2%, while the 5-year Treasury-indexed hybrid adjustable-rate mortgage held steady at 2.8%.

Don’t miss: This is the best time of year to get a mortgage

The slight decrease in rates was a testament to investor
activity, according to Realtor.com senior economist George Ratiu.

“With COVID cases still elevated amid the vaccine rollouts,
investors remained worried about high unemployment claims, volatile earnings
and lingering concerns about the economic outlook from the Federal Reserve,” he
said. “The mood kept them funneling funds into mortgage bonds.”

Despite the decline, Ratiu argued that rates will rise this
year. If that prediction plays out, what will happen to home sales? It depends
on who you ask.

“As we look at 2021, we expect rising mortgage rates to
dampen the pace of activity in the next couple of months, as many buyers will
be priced out,” Ratiu said. He noted, though, that as the youngest millennials are
entering their thirties and the economy is expected to improve from the
coronavirus pandemic, both factors that should keep the pace of home sales elevated
in the spring and summer.

Others argue that rising interest rates won’t necessarily hurt home sales or prices. “Historically, when mortgage rates rise, existing-home sales don’t necessarily fall,” Mark Fleming, chief economist at title insurer First American,
FAF,
-0.38%

wrote in a recent report.

Fleming examined previous eras where rates were rising. In
two cases — the 2005-2006 period and the 1994 period — home sales did fall
after interest rates increased. But in the other time periods he examined, home
sales actually increased. The difference came down to why rates were rising.

“Rising interest rates reduce house-buying power and
affordability, but are often a sign of a strong economy, which increases home
buyer demand,” Fleming wrote.



Source link

LEAVE A REPLY

Please enter your comment!
Please enter your name here