Mortgage rates continue record-breaking streak to new lows

Mortgage rates have continued their historic slide as the economic fallout of the coronavirus unfolds.

The average rate for a 30-year fixed-rate mortgage fell to 2.88 percent last week, the lowest since the government-sponsored mortgage-finance company Freddie Mac began tracking rates in 1971. That was down from 3.60 percent a year earlier, meaning a new homeowner buying an average-priced home, which in the Houston area is about $320,000, with 20 percent down would save $121 a month. The average rate for a 15-year fixed-rate mortgage fell to 2.44 percent.

REFINANCES: Refinances surge again as mortgages fall to all-time lows

But many will not be able to take advantage of the historically low rates. “(Banks) have continued to tighten lending standards in July, further restricting available credit,” said George Ratiu, senior economist at the home listing website, in an email. Prospective homebuyers now often need higher credit scores and downpayments than they did pre-pandemic, and those who are self-employed or own rentals are encountering more stringent requirements to prove their likely future income.

What’s more, the number of homes listed for sale in the Houston area remains below what it was a year ago, according to data from the Houston Association of Realtors. “At this pace, tighter lending standards and low inventory will squeeze housing activity and we will see a substantial slow down in sales in the second half of the year,” Ratiu said.

While low mortgage rates are good for homebuyers and owners, they signal that investors are concerned about the future of the economy. When investors become nervous, they seek safer investments and pour money into government bonds and mortgage debt — much of it backed by Freddie Mac and its sister company Fannie Mae.

Investors are so hungry for security that they are willing to accept lower yields, driving down the interest paid on bonds and mortgages. Actions by the Federal Reserve to support the economy, including cutting short-term rates to near zero and buying government- and mortgage-backed bonds, are also driving down mortgage rates.

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