Mortgage rates break a new record with economic slump

Are Record-Breaking Rates Behind Us?

Mortgage rates break a new record with economic slump

Here’s a look at the latest developments in the mortgage market for the week beginning 11/9/20.

  • Are record-breaking rates behind us?
  • These small cities are growing most due to urban flight
  • Forbearances drop to early pandemic levels
  • Home appraisal guide

Are record-breaking rates behind us?

Mortgage rates hit their 12th all-time low of 2020 last week, but there are indicators that the conditions which supported the downward trend may be about to change. While rates are always unpredictable, sustained record lows are looking less and less ly in light of recent events.

For example, rates jumped on Monday when pharmaceutical giant, Pfizer, announced its Covid-19 vaccine had shown 90% efficacy in trials. Goldman Sachs analysts pointed to the encouraging progress of vaccine research as a reason to think the economy may sustain a “V-shaped” recovery, bouncing back quickly to pre-pandemic levels.

Top economists say that the ability of Congress to finally pass a stimulus package will also impact the speed of the country’s recovery from the current recession. Further government aid could prevent a looming wave of foreclosures and bankruptcies and dramatically improve the near-term economic outlook. Good news for the economy, though, usually means higher rates.

Then, there’s the question of the Federal Reserve’s response as the economy improves. At the start of the pandemic, the Fed began buying up Mortgage Backed Securities (MBS) in an effort to soothe the markets.

The Fed has yet to indicate if they will taper their MBS purchases, but Wall Street experts expect cutbacks in the first half of next year.

Though the Fed has pledged to support the economy “for as long as it takes,” any signal that they will be withdrawing support is ly to increase mortgage rates.

All things considered, if the government is able to pass stimulus, research into coronavirus vaccines continues its progress, and the Fed pulls back its MBS purchases, there may be a relatively short window to secure a record-low rate. Trying to time the market is never advised, but given these factors, prospective home loan applicants may want to assess if it makes financial sense to pull the trigger sooner than later.

These small cities are growing most due to urban flight

Remote workers have been leaving major cities in favor of more space and lower housing costs. But where are they moving to?

Cities outside of major tech hubs Santa Barbara, Buffalo, and El Paso are, of course, seeing large inflows. Proximity to established communities combined with less density and lower prices are ly draws. Less central areas, though, Burlington, Vermont and Tulsa, Oklahoma, the latter of which actually pays people to emigrate, are also growing.

For homebuyers considering relocation, especially those transitioning from renting to owning, watching trends these can be helpful in deciding where to put down roots. With more buying opportunity potentially opening up this winter, it may be a good time to explore a wider range of options.

Forbearances drop to early pandemic levels

The number of mortgages in forbearance decreased last week to its lowest level since the start of the pandemic. Last week’s report from data analytics firm, Black Knight showed 2.86 million active forbearance plans—about 5.4% of all mortgages. This was the lowest number since mid-April.

Whether or not this is an indicator that homeowners are recovering from the financial impact of the pandemic, however, is unclear. 57% of new forbearances last week were actually renewals, showing that homeowners who had exited forbearance have now returned.

The role of appraisals in the home loan process

Record-low rates have made mortgages more accessible, but certain costs associated with getting a loan are fixed. Appraisals, which are required in the majority of mortgage transactions, are one such cost that applicants should be aware of. Whether you’re a homeowner or a homebuyer,’s guide to appraisals will help you navigate the process.

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Mortgage Interest Rates Forecast: Will Rates Rise In 2021?

Mortgage rates break a new record with economic slump

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The average rate on a 30-year fixed-rate mortgage was below 3% for the latter half of 2020. But at the beginning of March 2021 that seven-month streak ended, and most experts predict rates will continue to climb.

Rates May Remain Above 3%

At the end of 2020, economists forecasted that rates would break the 3% range in 2021, but not rise much higher than 3.1% to 3.3%. Still, at the high end of the forecast, rates could increase by more than half a percentage point above their record-low mark.

So far, those predictions have proven correct.

March marked the end of sub-3% rates, and they haven’t stopped inching up ever since.

Related: Best Mortgage Lenders

However, it’s important to keep in mind that rates are still well below where they were at the beginning of 2020, when they closed in on the 4% range. The silver lining is that rates are expected to remain fairly steady throughout 2021—not moving much higher than the low 3s.

“Rates are more ly to rise than fall, but it will be an inconsequential move,” says Lawrence Yun, chief economist at the National Association of Realtors. “The growing economy will raise the mortgage rate to around 3.1%, which is still near historic lows.”

Although a few percentage points is not a shocking jump, it can add hundreds of dollars to monthly mortgage payments and tens of thousands of dollars to the total cost of the loan.

The Mortgage Bankers Association (MBA) says it believes the average rate for a 30-year mortgage will start at 2.9% in the first quarter of 2021 and gradually increase to 3.2% by the end of 2021. Looking even further down the road, the MBA has 2022 rates peaking at 3.6%.

Higher rates can reduce buying power, especially as home price appreciation is on track to increase in 2021. The MBA forecast for home price appreciation in 2021 is 5.1%, which is a small dip from 5.3% in 2020.

In the following scenarios, you can see how even a small jump in interest rates can substantially increase the cost of a mortgage. These figures do not include insurance or taxes. For someone with a $500,000 home loan, a 4-basis point jump will cost them $115 more per month and $41,400.44 more over the life of the loan on a 30-year, fixed-rate mortgage.

The 10-year Treasury yield is typically an indicator of where mortgage rates are headed. The MBA predicts yields to rise in 2021, hitting 1.4% by the fourth quarter, on the assumption that the recovery will have a positive impact on the economy and that government spending will increase under President-elect Joe Biden’s incoming administration.

“There will be a broader economic impact on the second half of 2021. We expect more government spending and a new stimulus bill with Biden in office, which will put upward pressure on Treasury yields and rates,” says Joel Kan, associate vice president of economic and industry forecasting for the MBA.

Refinancing Will Slow in 2021

As mortgage rates continue to climb, fewer homeowners will be able to save money by refinancing their mortgages.

We’re seeing this happen in real time. In February, 18 million homeowners were refinance eligible, that is they could reduce their interest rate by 0.75% or more, according to data from Black Knight, a mortgage technology, data and analytics provider. But as rates surged above 3%, the number of eligible candidates shrunk to just 12.9 million homeowners—a 30% reduction in less than a month.

The MBA predicts that refinancing volume will fall from $2.149 trillion in 2020 to $1.191 trillion in 2021, mainly due to rising rates. There will be an even sharper decline of refinancing volume in 2022 to $573 billion, according to MBA’s latest forecast. The refinance share of all mortgage originations is predicted to drop to 41% in 2021 from 57% in 2020.

“Refinance activity will depend on rates. Even if rates rise a few basis points above where we’re at now, we can expect a pretty robust refi demand market in 2021,” says Odeta Kushi, deputy chief economist for First American Financial Corporation, a title insurance provider. “There are still many homeowners who can save money by refinancing.”

Since July, more than 15 million borrowers have been eligible to refinance as rates have stayed below 3%. The number of potential savers has grown as rates have fallen, expanding to 19.9 million people when the average mortgage rate fell to 2.67% on Dec. 17, according to Black Knight, a mortgage technology, data and analytics provider.

As rates rise, the pool of people who can save money by refinancing their mortgage will start to shrink again. If rates hit 3.13%, 6.2 million borrowers will no longer be able to cut costs with a new mortgage.

Homeowners who are considering refinancing might want to do it sooner than later, as rising rates can cut into your savings. The best way to ensure you get the lowest mortgage rate is to make sure your credit is in good shape and shop around.

Don’t settle for the first offer you get—unless you can lock in a rate as close to 2% as possible. It’s always a good idea to get several loan estimates and compare the total costs. Remember, your interest rate is just one cost of your loan, so you’ll want to compare APRs, which will give you the total cost, including lender fees.


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