The Great Mortgage Rate Debate: Will Rates Go Up or Go Down?

Will the lowest mortgage rates on record last?

Mortgage rates have collapsed. What else can you say?

The average price for a 30-year fixed rate mortgage was only 2.98% last week.

This is another record low – the lowest average rate seen since 1971, the year Freddie Mac started publishing weekly figures.

Now the big question for homebuyers and refinancers is: How long will the lowest mortgage rates on record last?

Find and lock in a low rate (December 29, 2021)

Today’s Record Mortgage Rates

Mortgage rates are in a ditch. Since 1981, mortgage prices have been falling steadily. Not every week or every month, but the general trend is clear.

As a borrower, here’s what you need to keep in mind when looking at mortgage rates today:

  • The rates are actually lower than what the headlines suggest. Freddie Mac’s weekly numbers are a lagging indicator. Mortgages at the cost of 2.5% were available in May for the strongest borrowers
  • Monthly fees are lower. Compared to November 2018, when rates were above 4%, a $ 200,000 mortgage now costs $ 225 less per month. Use our mortgage calculator to compare your current rate with new financing
  • Homes are more affordable when rates drop. But this increases the pool of potential buyers and tends to drive up prices. Prices of existing homes in May were up 2.3% from the previous year, according to the National Association of Realtors (NAR)
  • Low rates change foreclosure strategies. If you think rates are going to go up in the next few weeks or months, your best bet is to lock in your rate before you close. If you think the rates are going to go down more than it is better to let the rates float until settlement

Of course, “historic mortgage rates” have been in the news for months now.

So it’s easy to get lulled into thinking they’re not going anywhere – that we’ll be sitting comfortably at 3% forever. (Or at least, for the foreseeable future.)

But can the streak really last?

Mortgage rates have been falling for almost 40 years. If there was a peak in 1981, then surely there must be a trough – a point in time when mortgage rates usually start to rise.

Many believe the tipping point is coming soon.

The Case for Higher Mortgage Rates to Come

There are three main arguments for increasing mortgage rates in the near future:

  1. Increase in loan demand With rates so low, lenders are inundated with demands. In early July, the Mortgage Bankers Association reported that refinancing requests were up 111%, while purchase loan requests were up 33%. What happens when demand increases? Mortgage rates are rising
  2. An upcoming presidential election – It’s hard to predict what will happen in the November election, let alone how it will affect the mortgage economy. The 2016 election was followed by an almost immediate rate hike. What is certain is that investors will be following developments closely over the next few months. If investors expect greater economic stability in the future, they will start to pull out of the mortgage market and rates will rise.
  3. Seizures in progress due to COVID-19 – Earlier this month, ATTOM Data Solutions reported that foreclosure filings were at their lowest level in 15 years. For mortgage investors, such news means low risk and therefore a willingness to lend at low mortgage rates. But there are two problems with these numbers. First: Government lockdown protections, which kept deposits low during COVID-19, will eventually come to an end. Second, foreclosure numbers are delayed for at least 30 days because it takes time for the deposits to come out. So more foreclosures are likely to happen in the future – and with them, increased risk potential for lenders and higher rates.

These are all very real perspectives. We’ve already seen mortgage rates soar once this year, when lenders were overwhelmed with volume and had to stem the tide.

And what will happen in the post-COVID economy, not even the experts can tell.

Our advice: If you’re about to buy a home or refinance, heed these warnings.

Rates are already at their lowest. Further declines are likely to be incremental at best, and if you wait, you might miss your window.

Check your new rate (December 29, 2021)

The Case for Lower Mortgage Rates to Come

Maybe mortgage rates won’t go up. There is enormous uncertainty going forward due to the COVID-19 economy.

The argument goes, interest rates were low and falling before the virus hit. Why shouldn’t they keep falling?

The global supply of capital greatly exceeds demand. Investors in many countries invest with negative rates. Not just low rates, but real negative rates below 0%.

Interest rates were low and falling before the virus hit. Why shouldn’t they keep falling?

As we wrote last summer:

“The same factors that led to 3% financing are likely to lead us in the world of 2% mortgages.

“There is a permanent imbalance between investors with cash and people who want to borrow. Cash is everywhere, and more of it is likely to end up with a mortgage lender near you.

There is too much supply and too little demand, says the argument for lower tariffs.

And, in the future, nothing will change. With this in mind, rates are still trending downward.

Our advice: As we said above, it may not be worth risking today’s ultra-low rates in the hope of a slightly lower cut. If you are ready to buy or refinance, now may be the time.

But, if your plans for a loan are a little more advanced, you don’t need to move until you’re ready.

The coronavirus is the main force keeping rates where they are now. And unfortunately, that’s not going to go away any time soon. So you have a little time.

Your next move

Your next move depends on where you are in your fundraising process.

For those who are willing to relocate for a home purchase or refi, it probably makes sense to take advantage of the rates we see today.

And remember, just because some lenders are offering record rates doesn’t mean they all are. So shop around to find the best deal for you.

Show me today’s rates (December 29, 2021)

The information on The Mortgage Reports website is provided for informational purposes only and does not constitute an advertisement for any products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, its parent company or its affiliates.