Mortgage Rates Are Near Record Lows, but Home Buyers May Face an Uphill Battle in Securing Them

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Mortgage rates largely remained unchanged over the past week, but their ups and downs since the beginning of the year have created challenges for those looking to get a loan to buy a home.

The 30-year fixed-rate mortgage remained flat at an average of 3.33% during the week ending April 9, Freddie Mac reported Thursday. A year ago, the 30-year fixed-rate mortgage averaged 4.12%.

The 5-year Treasury-indexed hybrid adjustable rate mortgage also stayed the same over this last week, averaging 3.4%. The 15-year fixed rate mortgage, meanwhile, fell five basis points to an average of 2.77%.

Freddie Mac’s report is based on a survey of lenders, including a mix of thrifts, credit unions, commercial banks and mortgage lending companies. The number of each type of lender surveyed is roughly proportional to the share of the mortgage industry they represent.

Additionally, the survey results each week are weighted based on the most recent data regarding the dollar volume of conventional loans, meaning loans eligible for purchase by Freddie Mac or Fannie Mae. The survey therefore does not reflect movements in rates for loans backed by other agencies, such as the Federal Housing Administration or the Department of Veterans Affairs. It also doesn’t include rates for jumbo loans.

Therefore, the averages Freddie Mac publishes may not fully align with what a home buyer sees on the ground if that buyer is getting one of these other types of mortgages. “The type of loan you’re getting is going to lead to different rates,” Danielle Hale, chief economist for Realtor.com, told MarketWatch.

But other factors are also influencing loan pricing at the ground level. “There’s a lot of volatility in markets in general,” Hale said. “People see that in the stock market, which swings up and down depending on the time of day, and that’s also true in the mortgage market.”

(Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a News Corp subsidiary.)

Mortgage-backed securities have been volatile in particular, and the yields on these help to drive the rates lenders set for the loans they offer.

Lenders are also facing major workflow issues that could impact the pricing and availability of loans. On the origination side of the mortgage business, record-low interest rates have meant that lenders have had to grapple with a massive demand for refinancing at a time when they must also adapt to performing their work remotely.

Meanwhile, on the loan servicing front, mortgage companies are dealing with a huge influx of requests from borrowers seeking forbearance, or a temporary halt on making payments. The most $2.2 trillion stimulus bill guaranteed that any homeowner with a federally-backed mortgage could delay payments on their loan by up to a year.

Mortgage servicers are facing a major cash crunch as a result, Hale said, because they must continue to may payments each month to the investors who own those loans.

“The threat of missed payments also introduces the potential for greater risk for lenders, resulting in tighter lending restrictions and a less-active market for non-agency and less conventional loans,” Zillow economist Matthew Speakman wrote in a research note Wednesday. “Taken together, even though average rates have appeared to stabilize, volatility remains throughout much of the market.”

For those who are still in the market to buy a home right now and looking for mortgage financing, securing the lowest rate possible has become more challenging as a result. Americans in that position definitely should compare rates given how much they can differ from lender to lender. But time is of the essence, because a given lender could move their rates higher or lower, even within a given day.

“I would recommend trying to compare rates in as short a period of time as possible,” Hale said. “So that you’re really comparing apples to apples.”

Looking ahead to the future, there is still the possibility that rates could fall even lower. Historically, mortgage rates have roughly tracked the direction of the yield on the 10-year Treasury note. As the coronavirus outbreak worsened, the 10-year yield dropped below 1%, and it has remained below that level since mid-March.

Mortgage rates haven’t followed the 10-year note’s yield as closely because of the upheaval the industry has seen in recent weeks. Should things stabilize within the mortgage industry though, mortgage rates are poised to move lower.

“There is room for rates to move down,” Sam Khater, Freddie Mac’s Chief Economist, said in the weekly rates report. “As financial markets continue to heal, we expect mortgage rates will drift lower in the second half of 2020.”

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