The interest on home loans has moved from remarkably low to almost unthinkably low in an influential survey that's been keeping an eye on mortgage rates since 1971.
Mortgage giant Freddie Mac says rates have hit another new all-time low and are bringing about a "remarkable turnaround" in the housing market, by enticing would-be homebuyers to come out of COVID-19 quarantine and go house shopping (often wearing masks and using hand sanitizer).
Americans who already are homeowners are grabbing rates off the bargain rack, too, and are saving tens of thousands of dollars through refinances.
Average mortgage rates slide to new record
Mortgage rates fell to an average 3.15% for a 30-year fixed-rate home loan in the week ending May 28, down from the previous week's 3.24%, Freddie Mac reported Thursday.
"The 30-year fixed-rate mortgage has again hit the lowest level in our survey’s nearly 50-year history, breaking the record for the third time in just the last few months," says Sam Khater, Freddie Mac's chief economist.
The survey rates come with an average 0.7 point. At this time in 2019, the typical rate on a 30-year fixed mortgage was nearly 1 full percentage point higher, at 3.99%.
The benchmark mortgage rate hasn't risen above an average 3.33% since early April, and Freddie Mac predicts rates will stay low throughout the year. The firm says 30-year mortgage rates will average 3.3% during 2020, down from last year's 3.9%.
Forecasters at Realtor.com say average rates "may slide under 3% by the end of the year," and rates as low as 2.5% are already out there. But you have to know where to find them.
Shopping around is essential, because new research from LendingTree finds different lenders can offer the same borrower rates that vary by 1 percentage point or more. If you don't comparison shop, your loan can cost as much as $52,000 in additional interest, the study says.
Homebuying makes a comeback
Hunkered-down homebuyers are being lured out by plunging mortgage rates. Khater says demand for mortgages to purchase homes has made a "remarkable turnaround given the sharp contraction in economic activity."
The Mortgage Bankers Association reported Wednesday that applications for purchase loans jumped 9% in the week ending May 22 and have increased 54% since the first part of April.
As low rates re-energize the housing market, multiple offers and escalation clauses are starting to reappear, says Corey Burr, senior vice president with Sotheby's International Realty in Chevy Chase, Maryland. Offers submitted with escalation clauses can automatically go higher if another buyer offers more.
Real estate brokerage Redfin says its agents were swept into bidding wars with 41% of the offers they wrote in a recent four-week period. Fort Worth, Texas, agent Crystal Zschirnt saw one home attract 17 competing offers in early May.
"The only homes that are sitting on the market without multiple offers are overpriced," Zschirnt says.
Meanwhile, homeowners are refinancing into cheap mortgage rates to chop down their monthly payments and interest costs. With so many Americans trading in their mortgages for loans at lower rates, Freddie Mac's Khater says the average refi loan size has fallen by $70,000 this year.
"This means a broader base of borrowers are taking advantage of the record low rate environment, which will benefit the economy," he says.
The week's other mortgage rates
Rates on other popular types of mortgage loans also are going down in the latest Freddie Mac survey.
The average for a 15-year fixed-rate mortgage has dipped to 2.62%, from 2.70% the previous week, the survey says. The 15-year mortgage — a popular choice for refinance loans — was averaging 3.46% one year ago.
Rates on 5/1 adjustable-rate mortgages, or ARMs, are lower, too. Those loans have rates that are fixed for five years and then can adjust up or down each year that follows.
ARMs right now are being offered at a typical initial rate of 3.13%; the average a week earlier was 3.17%.
Last year at this time, the starter rates on those mortgages were averaging 3.60%.