Mortgage rates in the U.S. dropped to another record low, adding fuel to a housing market that’s been a key source of strength for the pandemic economy.
The average for a 30-year, fixed loan was 2.86%, down from 2.93% last week and the lowest in almost 50 years of data-keeping by Freddie Mac. It was the ninth time since the coronavirus started roiling financial markets that rates fell to a new low. The previous record, 2.88%, was reached in early August.
Cheap mortgages have ignited a housing rebound, driving sales of both new and existing homes and putting money back into the pockets of borrowers who have been able to refinance.
Challenges
Still, the rally faces challenges from persistent job losses and an inventory shortage that’s pushing up prices, reducing the pool of people who can afford to buy a house.
“Heading into the fall, it will be difficult to sustain the growth momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity,” Sam Khater, Freddie Mac’s chief economist, said in a statement Thursday.
Mortgage rates dipped below 3% for the first time in July and have continued sliding as the Federal Reserve keeps its benchmark rate near zero.
Continue Sliding
Based on the yield for 10-year Treasuries, which typically guides mortgage rates, borrowing costs could continue sliding, according to Tendayi Kapfidze, chief economist at LendingTree.
“If the spread narrows to where it was before Covid, it can go as low as 2.3%,” he said.
The lower borrowing costs have led to a flood of applications for refinancing and new purchase loans, particularly as Americans look for more space for home offices and remote learning.
Nearly 18 million homeowners with good credit and at least 20% equity stand to cut at least 0.75% off their current rate by refinancing, according to a report this week by Black Knight Inc.