The average U.S. mortgage rate for a 30-year fixed loan fell two basis points this week to 2.65% – the lowest rate in the Freddie Mac’s Primary Mortgage Market Survey’s near 50-year history. This week’s mortgage rate broke the previous record set on Dec. 24.
With this week’s record drop, there have now been 22 consecutive weeks when average mortgage rates have been below 3%, and this is the 17th time this year rates have broken a record.
The average fixed rate for a 15-year mortgage also fell last week to 2.16% from 2.17%. A year ago at this time, the 15-year FRM averaged 3.07%.
Despite a full percentage point decline in rates over the past year, housing affordability is slipping as these low rates have been offset by rising home prices, according to Sam Khater, Freddie Mac’s chief economist.
“The forces behind the drop in rates have been shifting over the last few months and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season,” Khater said.
This year’s record low rates may be setting a new norm.
Len Kiefer, Freddie Mac‘s deputy chief economist, noted every decade since the 1980s experienced a 2% drop decade-over-decade. With rates sitting at close to 12% nearly 50 years ago, declining patterns may mean 30-year mortgage rates could average 2% the rest of the 2020s.
“Even just a year ago, that didn’t seem probable, and it’s certainly not my baseline forecast, but we’d have to acknowledge that there is a chance rates could continue their secular decline,” Kiefer said.
However, news of Democrats having won control of the Senate on Tuesday has some economists shifting gears.
The prospects of increased spending and deficits will likely put upward pressure on mortgage rates as the year progresses, said Mortgage Bankers Association Chief Economist Mike Fratantoni. In turn, Fratantoni estimates the massive refinance wave lenders have been riding may be cut short.