Long-term mortgage rates have reached their lowest level in more than a year, giving families an opportunity to secure cheap home loans, according to data released Thursday.
On the back of “underwhelming” economic news, the average rate for the popular 30-year fixed-rate mortgage just dropped to 3.89%, the lowest reading since May 2013, according to a Thursday report from federally controlled mortgage-buyer Freddie Mac. The rate is now about half a percentage point greater than the near-record-low hit last year.
While the market is unlikely to see long-term rates revisit last year’s bottom, current low levels may stick around through January, giving families a chance to lock in affordable monthly home payments, said Frank Nothaft, Freddie’s chief economist.
“I don’t see a whole lot of movement in long-term interest rates,” Nothaft said.
After rate fluctuations over the past year, mortgage applications to buy a home are about 20% below a May 2013 peak, while refinancing applications are down 74%, according to the Mortgage Bankers Association.
While low rates should support borrowers’ interest in refinancing, the recent drop by itself won’t be enough to spur a large jump in home buying. In addition to the cost of borrowing, families that want to buy a home must consider major factors such as careers and kids. But a sub-4% rate for a 30-year-mortgage would be a nice welcome mat for the hot home-sales market in the spring.
“Whenever we have a drop in rates, that can only be good for housing demand,” Nothaft said. “I do expect that it will continue to support a high level of affordability in most markets for those families with that have the financial wherewithal to buy a home.”
Then again, although rates are low, they are higher than record bottoms, and may not do much for housing activity.
“People are impressed by record-lows, and don’t want to miss an opportunity to take out a mortgage when interest rates can only go up…What is happening now doesn’t seem so salient,” Robert Shiller, Nobel Prize-winning economist and housing-market expert, wrote in an email to MarketWatch.