If you are considering a home purchase soon, you’re probably watching mortgage rates very closely. Will they creep higher? Will they stay the same? Or might they do even lower as the pandemic rages on in the weeks or months?
Property experts have different opinions regarding this matter. Still, many of them agree that rates are probably going to remain historically low in September 2020, making it affordable for borrowers to go ahead and take the leap.
What are the current interest rates?
On September 10, the average mortgage rate for 30-year fixed mortgages hit 2.86%—a new record low, and quite astonishing considering the economic uncertainties brought on by the health crisis. According to the Federal Home Loan Mortgage Corporation, this is down by 0.07% from the 2.93% rate the week before. Average rates for 15-year fixed mortgage likewise dropped to 2.37% from 2.43% in the same period—also recording a historic low.
But experts advise borrowers to act fast because these numbers may change before we know it. After all, all the US financial chaos has already prompted the Federal Reserve to do two emergency rate cuts since March.
Financial analysts say that rates may move slightly higher as the economy shows some recovery signs from the coronavirus-induced downturn. But it should be a long road with lots of starts and stops—and the economic backdrop remains weak—so all in all, rates will likely remain low for buyers.
However, the new 0.5% adverse market fee applied to refinancings by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation may push lenders to implement higher rates. This ultimately dilutes the benefits of a low-interest-rate environment for many homeowners.
The outlook for September
Economists and researchers anticipate 30-year fixed rates to hover around 3% to 3.1% in September—a bit higher than what they are now.
Why? Because low-interest rates are largely unsustainable. For example, the 30-year fixed-rate dropped to 2.88% in the first week of August—a rate that was too low to hold, experts said, because it created a higher demand for loans that ended up pushing rates upward. That demand was evident in the sharp 25% rebound in home sales month-over-month in June and July. There was also an apparent surge in mortgage applications, which increased by 26% from a year ago.
Many analysts agree that the financial markets driving the movement of mortgage rates seem to have adapted to the immediate-term risks brought on by COVID-19. Mortgage and housing data are still showing an uptrend as job markets recover, and the number of layoffs decreases. This demand can ultimately push mortgage rates up.
But not everyone agrees. Some experts expect rates to go even further down. September should show a decline in 30-year fixed rates as spreads narrow to normal levels. There has always been a historical relationship between the 10-year US Treasury and the 30-year fixed-rate. That spread is usually about 1.75%, but it has continued to widen and is now at about 2.3%.
Rates after September
The Mortgage Bankers Association predicts that 30-year fixed rates will 3.1% in the fourth quarter and remain there in 2021.
According to Fannie Mae, there should be a slight dip to 2.9% around the last three months of the year and a decline to 2.7% by the last few months of 2021. Meanwhile, Freddie Mac foresees rates averaging around 3.4% percent in the remainder of 2020 and approximately 3.2% in 2021.
After all, there are still risks surrounding a possible resurgence of COVID-19 cases, unemployment remains high at 10%, and inflation remains below 2%. The Fed is not expected to raise the federal funds rate in its meeting this month, but increased homebuying demand may push rates up slightly.
This backdrop of uncertainty may be complicated even further by the upcoming elections, so some experts believe that rates should remain within 25-50 basis points of current values. Muted COVID-19 cases in the winter and the discovery and implementation of a vaccine may trigger a bond selloff if they happen, causing higher rates.
And then there’s the most significant risk of all: potentially higher inflation. The federal government has printed trillions of dollars over the recent months to stimulate the economy, and there’s less production as most businesses remain closed. If companies and consumers start using all of this stimulus while production continues to remain low, inflation can pick up—and this will push the Fed to raise interest rates.
Is it a good time to buy a home?
For buyers with a stable income and a down payment ready, now may be an excellent time to get a mortgage or possibly even refinance. Experts think it makes sense to take advantage of low-interest rates and beat the seemingly unceasing uptick in housing prices. The tight inventory has accelerated home prices, with median sale prices rising by almost 9% year-over-year last July.
What about commercial real estate?
CRE loan rates for 2020 vary depending on the type of loan. SBA 504 loan rates typically fall in the range of 3.91% to 4.25%. SBA 7(a) loan rates are in the 7.75% to 10.25% range. Meanwhile, conventional loan rates are anywhere from 5% and 7%.
Note that commercial real estate loan rates can frequently change as they are based on market rates. That said, CRE rates generally don’t experience dramatic fluctuations. Your interest rate is also affected by your creditworthiness, business finances, and the commercial property for which the loan will be used.