Mortgage rates will drop below 3% by year-end as their record decline continues, Fannie Mae says
Mortgage ratesare set to continue their historic decline and are likely to breach 3% later this year, according to Fannie Mae.
- The 30-year fixed mortgage rate is already sitting at a record low of 3.03%, helping to spur
homepurchases and refinances even amid a recession caused by the COVID-19 pandemic.
- Fannie Mae expects that as lender capacity constraints ease following a boom in refinancing activity, spreads between mortgage rates and the 10-year Treasury will contract.
- According to Fannie Mae, nearly 60% of outstanding mortgage balances have at least a 0.5-point incentive to refinance.
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Expect mortgage rates to extend their historic decline to below 3% by the end of this year, Fannie Mae said in a note published on Tuesday.
In the second week of July, the 30-year fixed mortgage rate declined to 3.03%, a record low.
Throughout the second quarter, Treasury yields moved mostly sideways while mortgage rates declined considerably, putting pressure on the spread between the 10-year and mortgage rates, the note said. In June, the spread was 243 basis points, well above 2019's average of 180 basis points, Fannie Mae said.
Fannie Mae said the spread would continue to fall as capacity constraints lessen among lenders. "We expect mortgage rates to fall below 3.0 percent by the end of this year, which should continue to provide support for home purchase activity," the note said.
Low mortgage rates have helped fuel a boom in home purchases and refinances as people look to take advantage of the lower rates. According to Fannie Mae, nearly 60% of outstanding mortgage balances have at least a 0.5-point incentive to refinance.
Because of low rates and continued social-distancing measures that have forced some households to reassess their situation, Fannie Mae increased its forecast for second- and third-quarter home sales to 4.3 million and 5.4 million.
But Fannie Mae doesn't expect the surge in homebuying demand to continue forever. The mortgage loan company said that the COVID-19 pandemic had pulled forward a lot of demand and that it expected "a pullback in existing sales over the latter half of the summer."
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A lot of that expected pullback has to do with inventories. According to Fannie Mae, the supply of homes available for sale lags behind the pace of purchase activity. "Total homes available for sale in June remained 27.4 percent below inventories from a year prior," Fannie Mae said, citing data from Realtor.com.
Another component of home sales that's on the rise? Prices.
Data from CoreLogic indicated that home prices were up 4.8% year-over-year in June, "the fastest pace of growth since November 2018," the note said. Taking recent data into account, Fannie Mae increased its forecast for 2020 annual home-price growth to 4.4% from 0.4%.
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