Mortgage rates have taken a leap this week above their recent all-time lows as frazzled lenders have thrown some cold water on the overheated demand for loans.
Rates are likely to drop again — possibly way down below 3%, according to some forecasts — largely thanks to the Fed's emergency measures to soften the economic blow from COVID-19.
But experts tell MoneyWise.com you're better off not waiting for mortgage rates to go back down. That's because today's rates are still very low, historically speaking, and borrowers are likely to face a slowdown in loan closings as the current lending "logjam" worsens.
If you're in the market to buy a home or refinance your mortgage and you see an attractive rate, lock it — so you don't miss out.
Mortgage rates make a big move higher
Mortgage rates have gone much higher, just two weeks after they hit a record low in the nearly 50-year-old weekly survey from mortgage company Freddie Mac.
The benchmark 30-year fixed mortgage rate climbed to an average 3.65% in the week ending March 19, Freddie Mac reported on Thursday. That's up from 3.36% last week — and up from the all-time low of 3.29% recorded earlier this month.
"Lenders increased prices to help manage skyrocketing refinance demand," explains Sam Khater, Freddie Mac’s chief economist. "This is expected to be a short-term phenomenon as lenders work through their backlog."
One year ago, 30-year mortgage rates were averaging 4.28%.
As rates have risen, mortgage applications have fallen. They were down 8.4% last week, led by a 10% dip in demand for refinance loans, the Mortgage Bankers Association says.
But refinance applications were still up by a breathtaking 402% compared to the same week in 2019.
Why not wait for lower rates to return?
The Federal Reserve recently slashed a key short-term interest rate to near zero and announced it would buy $500 billion in Treasury bonds and $200 billion in mortgage-backed securities to help lower long-term rates, such as the rates on home loans.
As a result, observers say it may not be long before mortgage rates go tumbling again — maybe to astonishing new lows.
Frank Nothaft, chief economist with CoreLogic, says 30-year mortgage rates below 3% "cannot be ruled out, it is a possibility" later this year.
But Nothaft adds this advice: "If someone is shopping for a mortgage today, though, I would not wait for rates to get to 3%. It could happen, but maybe not. Take advantage of today’s very low rates."
If mortgage rates plunge again, nailing down a cheap home loan may be as tough as it currently is to find toilet paper or hand sanitizer, says Alan Rosenbaum, founder and CEO of the New York-based mortgage lender GuardHill Financial Corp.
"Demand will increase to unprecedented levels so I would encourage consumers to close now before the logjam extends closings to the three- to six-month range," Rosenbaum says. "With the anxiety of the virus surrounding us all, we recommend making life a little bit easier and close before the system gets further bogged down."
Other mortgage rates this week
Rates on other popular mortgage types also have gone higher this week.
The average for a 15-year fixed-rate mortgage has popped up to 3.06%, according to Freddie Mac. Last week, the typical rate for those loans — which are a popular for refinancing — was 2.77%. One year ago, 15-year fixed home loans were averaging 3.71%.
Rates on 5/1 adjustable-rate mortgages have gone up, after falling for six weeks in a row. Those "ARMs" are fixed for five years and then can adjust up or down every year after that.
ARMs are currently being offered at an initial rate of 3.11%, up from 3.01% last week. A year ago at this time, the starter rates on ARMs were a sharper 3.84%, on average.