Mortgage rates have closed out 2020 around the lowest levels on record. But those looking to lock-in this cheap financing shouldn’t wait on the sidelines for too long.
The 30-year fixed-rate mortgage averaged 2.67% for the week ending Dec. 31, up a basis point from the new record low of 2.66% set the week prior, Freddie Mac FMCC, +0.87% reported Thursday.
Meanwhile, the 15-year fixed-rate mortgage dropped two basis points to an average of 2.17%, representing a record low for that mortgage product. The 5-year Treasury-indexed hybrid adjustable-rate mortgage fell by eight basis points to 2.71%.
“With 2020 wrapping up, we can look back on a year where low mortgage rates served as a potent fuel, driving activity and offering buyers access to a home,” said George Ratiu, senior economist at Realtor.com.
On more than a dozen separate occasions this year, mortgage rates decreased to record lows, per Freddie Mac’s weekly report. Indeed, rates fell to levels once thought to be infeasible, if not impossible.
But a number of factors could push rates higher in the New Year. “Compared to the passage of the newly-passed COVID-19 relief bill, which markets had been expecting for months, the results of two Senate runoff elections in Georgia and the possibility of more fiscal relief are both far less certain in the eyes of investors and thus could prompt sharp movements in bond yields depending on their outcomes,” said Matthew Speakman, an economist with Zillow ZG, -0.59%.
Mortgage rates roughly track the direction of long-term bond yields, especially the 10-year Treasury note. “Until more is known on either of those fronts, meaningful movements in mortgage rates appear unlikely,” Speakman added.
Longer-term, the trajectory of the pandemic and the economy will have a major influence on rates. With vaccines now rolling out, the global community seems poised to begin emerging from the pandemic. If that benefits the U.S. economy as expected, rates will certainly rise.
Accordingly, most economists have projected a rate increase for 2021, though they differ on how much rates will go up by.
Economists project rising mortgage rates in 2021
| ORGANIZATION | PROJECTED AVERAGE 30-YEAR MORTGAGE RATE IN 2021 |
| Fannie Mae | 2.7% |
| Freddie Mac | 3.0% |
| Mortgage Bankers Association | 3.2% |
| National Association of Realtors | 3.0% |
| Realtor.com | 3.2% for most of the year, 3.4% by year’s end |
Whatever the amount, rising mortgage rates threaten to make buying a home unaffordable at a time when home prices are increasing by record amounts. “We expect rising mortgage rates to challenge first-time buyers still struggling to find an affordable home as inventory hits new lows and prices continue to climb,” Ratiu said.
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