Mortgage rates stabilize near record lows — but rates could fall lower this year

The trajectory of interest rates will depend on how the U.S. economy rebounds from the coronavirus pandemic

Mortgage rates could fall below 3% on average, depending on how steady the economic recovery from the coronavirus is.

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Mortgage rates continue to hover around all-time lows — and if the economic rebound from the coronavirus shutdowns is prolonged, rates could move even lower.

The 30-year fixed-rate mortgage averaged 3.28% during the week ending May 14, representing an uptick of two basis points from a week ago, Freddie Mac

reported Thursday. A year ago, the 30-year fixed-rate mortgage averaged 4.07%.

The average rate for a 30-year home loan dropped to an all-time low of 3.23% earlier this month as jobless claims because of the coronavirus outbreak mounted.

The 5-year Treasury-indexed hybrid adjustable rate mortgage rose one basis point over this last week, averaging 3.18%. The 15-year fixed rate mortgage, meanwhile, fell one basis point to an average of 2.72%.

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The trajectory of mortgage rates could once again be determined by the direction of the yield on the 10-year Treasury note, economists said. The relationship between bond yields and mortgage rates has deteriorated over the course of the COVID-19 crisis, largely because of stress across the mortgage industry.

As people have lost their jobs or income, many have had to enter into forbearance agreements to avoid missing monthly mortgage payments. But that has put stress on the mortgage industry, as millions of homeowners are now skipping payments. While lenders have reduced rates to all-time lows throughout this episode, mortgage rates have not fallen as sharply as the 10-year Treasury.

But as the economic recovery from the coronavirus unfolds, lenders could look to what’s going on in bond markets more. Federal Reserve Chair Jerome Powell signaled that the recovery from COVID-19 could be a rocky one, noting that “the scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II.”

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“The gloomy remarks led investors to seek out the safety of Treasuries, movements that generally push mortgage rates lower,” said Zillow

economist Matthew Speakman.

A rocky recovery combined with stabilization in the mortgage market — thanks to actions by Fannie Mae and Freddie Mac, in part — would allow mortgage rates to remain lower.

“Looking forward, while rates may rise from week to week, we expect the overall trend to be downward, with rates sliding below 3 percent by the end of 2020,” said Danielle Hale, chief economist at

If the average rate on the 30-year mortgage does drop below 3%, that would mark a significant change from just months ago, when lending experts argued that such an occurrence wouldn’t happen.

But not all borrowers will enjoy those low rates. Lending standards will likely remain tight even as mortgage rates move lower or remain near all-time lows, meaning that borrowers with lower credit scores or those seeking jumbo loans that can’t be sold Fannie Mae

or Freddie Mac will have a harder time getting a mortgage.

“Rates associated with riskier mortgages are unlikely to fall much,” Speakman said.

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