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July mortgage rates forecast
The interest rate on the 30-year fixed-rate mortgage remained near record lows in June and is likely to stay there in July.
The 30-year fixed averaged 3.33% APR in the first four weeks of June, a smidgen lower than the 3.37% average APR in May and 3.36% in April. June's rate average was the lowest in the four-year history of NerdWallet's daily rate survey.
A mission to reduce rates
Mortgage rates were remarkably anchored from April through June after the Federal Reserve intervened to stabilize rates and push them down.
But the Fed's intervention hasn't been entirely successful: Although mortgage rates have been remarkably stable, they're stuck at a higher-than-expected level. To put it more bluntly, rates should be lower.
Since March, the central bank has bought billions of dollars' worth of Treasurys and mortgage bonds "to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions," as the Fed explained in a June 10 statement.
Dissecting that short passage:
The Fed is saying that its goal is to push interest rates, including mortgage rates, lower. That's what "transmission of monetary policy to broader financial conditions" means.
It's trying to accomplish that goal by buying Treasurys and mortgage bonds to calm and stabilize those markets. Stabilizing markets is a method, not the goal.
Fed failed to make a bigger splash
The Fed has succeeded in calming the waters. That's why there were ripples, not waves, in fixed mortgage rates from April through June. But it has only partially succeeded in its goal to push interest rates lower. For the Fed to declare victory in "fostering effective transmission of monetary policy to broader financial conditions," mortgage rates would have to fall another half a percentage point or so.
With its intervention, the Fed decreased Treasury yields and mortgage rates. But the results are unequal: Since January, the 10-year Treasury yield has fallen a little over one percentage point, while the 30-year mortgage has fallen about half a percentage point. Normally, the two would fall roughly the same amount.
Rates slow to sync with Treasurys
Why haven't mortgage rates fallen further? You might guess that lenders are keeping rates elevated to offset the risk of mortgages going into default during the COVID-19 recession. But mortgage rates tend to fall during recessions.
Maybe mortgage servicers, the companies that collect monthly payments and work with past-due borrowers, want to be paid for the increased risk they bear, and it's translating to higher rates. Maybe an undetected economic force keeps a floor on mortgage rates, preventing the 30-year fixed from falling below 3% and lingering there.
A more plausible theory is that mortgage rates will follow historical patterns and shamble lower until they've fallen roughly the same as Treasury yields. That's the conclusion that Bill Emmons, economist for the Federal Reserve Bank of St. Louis, makes in a paper titled "Why Haven't Mortgage Rates Fallen Further?"
Using history as a guide, Emmons writes, "we would expect a further decline in mortgage rates of perhaps 0.5 percentage points." If he's right, mortgage rates might drop in July.
Don't count on it, though. Not after these two months of stability; rates might continue to tread water.
What are the current mortgage rates today?
On Monday, July 13, 2020, the average rate on a 30-year fixed-rate mortgage went up three basis points to 3.188%, the average rate on a 15-year fixed-rate mortgage rose four basis points to 2.715% and the average rate on a 5/1 ARM was unchanged at 2.883%, according to a NerdWallet survey of mortgage rates published daily by national lenders. A basis point is one one-hundredth of one percent. Rates are expressed as annual percentage rate, or APR. The 30-year fixed-rate mortgage is five basis points lower than one week ago and 85 basis points lower than one year ago.
» MORE: Compare top mortgage lenders
Mortgage rates this week
Even as mortgage rates sink to record lows, many people are finding it difficult to pay their mortgage or rent.
The 30-year fixed-rate mortgage averaged 3.19% APR, nine basis points lower than the previous week's average.
The 15-year fixed-rate mortgage averaged 2.71% APR, eight basis points lower than the previous week's average.
The 5/1 adjustable-rate mortgage averaged 2.89% APR, six basis points lower than the previous week's average.
These are the lowest weekly averages for mortgage rates since NerdWallet began gathering daily rate data in May 2016. Rates have fallen more than three-quarters of a percentage point in the last year. That's a positive sign for home buyers as well as for homeowners who want to refinance their mortgages.
» MORE: Reasons to refinance a mortgage
But an ominous cloud has settled on the horizon: More than one-quarter of Americans are having trouble paying for the roof over their heads. And the problem is getting worse.
For nine weeks, the U.S. Census Bureau has conducted a Household Pulse Survey to find out how people's lives are affected by the COVID-19 pandemic. In Week 9, conducted June 25-30, 25.9% of Americans said they had missed the previous month's rent or mortgage payment, or fear that they won't make next month's payment on time. (The census calls this "housing insecurity.") Four weeks earlier, the figure was 23.7%.
In Week 9, the state with the highest housing insecurity was Mississippi, at 38.3%. It was followed by New York (36.7%) and Texas (33.2%). Of the 15 large metro areas surveyed, Houston had the highest housing insecurity, at 45.7%, followed by Miami (40.5%) and New York City (35.7%).
Vermont (14.1%), Iowa (14.6%) and Wyoming (15.7%) were the states with the lowest housing insecurity, and Boston (19.9%), San Francisco (21.1%) and Seattle (21.5%) were the metro areas with the lowest housing insecurity.