As we near the end of the year, mortgage interest rates continue to rock bottom yet again.
Rates for a 30-year, fixed-rate loan closed out the week of December 17 at 2.67%, four basis points lower than the previous low of 2.71% seen for the past two weeks, as the Freddie Mac weekly survey indicates. This is a slightly steeper decline than we have been seeing most weeks when the rates would only take one or two basis points off to reach their new low.
The same trend appeared with the 15-year loans, dropping to 2.21%, down from 2.26% the week before.
At the beginning of the pandemic, when rates started seeing their first wave of record lows, many industry pundits were saying they would never dip below 3%. That was proven wrong in mid-July when they settled at 2.98% for a 30-year loan and 2.58% for a 15-year loan.
Now the question becomes will rates dip under the 2% threshold. It is looking very possible for 15-year loans to reach that territory, and for 30-year loans, it isn’t out of the question.
As expected, demand is keeping pace with the low rates. According to the Mortgage Bankers Association weekly report, purchase applications are up 2% compared to a week ago, but 26% compared to one year before. Refinance applications are still the dominant driver of activity, nudging up by 1% over the past week but a whopping 105% compared to last year.
Something to keep an eye on is the government loan activity since FHA loans are trending slightly upwards. Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, posits, “Government purchase applications rose for the sixth straight week to the highest level since June—perhaps a sign that more first-time buyers are entering the market.”
In just a few months we can expect a very competitive housing market to be the reality. There just isn’t enough inventory to meet all the demand. And with rates expected to stay this low for the near future, buyers will want to buy a home as quickly as they can. I expect to see some more downward dips in interest rates before they reverse course. In the spirit of the holidays, it won’t be once more with feeling. But once more with fewer basis points.