Mortgage Interest Rates Forecast

Holden LewisOctober 29, 2020
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On a similar note...
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Mortgage rates today: Thursday, Oct. 29, 2020

On Thursday, Oct. 29, 2020, the average rate on a 30-year fixed-rate mortgage fell one basis point to 2.92%, the average rate on a 15-year fixed-rate mortgage dropped two basis points to 2.495% and the average rate on a 5/1 ARM was unchanged at 2.926%, 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 eight basis points lower than one week ago and 117 basis points lower than one year ago.

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If you can't make your full mortgage payment, or you're worried that you won't be able to make the payments soon, contact your mortgage servicer immediately. Under provisions of the CARES Act, you may be eligible for mortgage forbearance, temporary relief in which the lender allows you to make lower monthly payments, or no payments at all, for a specified time. NerdWallet's article about mortgage forbearance explains the basics.

A forbearance may prevent you from getting another mortgage for at least three months. Lenders are unlikely to approve you for a mortgage until you have made three on-time payments following the forbearance. During that period, you probably won't be able to get a mortgage to buy a home or to refinance.

See what types of mortgage relief programs are available to homeowners who are worried about making their house payments due to the coronavirus outbreak.

To get help, you will need to contact the mortgage servicer that collects payments. See an alphabetical list of mortgage servicers with contact information.

Here are general guidelines for what to do if you can't pay your mortgage.

Mortgage rates this week

Fixed mortgage rates reversed course and rose modestly in the week ending Oct. 23.

  • The 30-year fixed-rate mortgage averaged 2.97% APR, up three basis points from the previous week's average.

  • The 15-year fixed-rate mortgage averaged 2.56% APR, up three basis points from the previous week's average.

  • The 5/1 adjustable-rate mortgage averaged 2.94% APR, unchanged from the previous week's average.

Mortgage rates moved upward alongside the yields on government debt, namely the 10-year Treasury note. Both got a boost from news that the House of Representatives and the White House were haggling over an economic relief plan.

As those negotiations continued, word came that the housing market is faring surprisingly well, considering that the unemployment rate is 7.9% and 3 million homeowners are in mortgage forbearance plans that allow them to stop making full payments temporarily because of financial hardship.

Existing home sales surged in September to a seasonally adjusted annual rate of 6.54 million, according to the National Association of Realtors. That marked a 20.9% increase over the rate of home sales a year earlier, before COVID-19 darkened our door.

Half of homes sold in September went for more than $311,800, a 14.8% increase over the median price a year earlier. Let those numbers sink in. If car prices, or the cost of a kilowatt-hour of electricity, or local property taxes went up almost 15% a year, it would cause a stir. A home is the most expensive thing that most households buy — and the median price went up 14.8% year-over-year in September after going up 11.3% year-over-year in August. All while millions of Americans are out of work.

Prices blasted off as supply dwindled. Just 1.47 million existing homes were for sale at the end of September. At the month's sales pace, it would take just 2.7 months for all the homes on the market to be sold — even the ones with shag carpeting that haven't been remodeled since the 1970s. A 2.7-month housing supply is a sign of a lopsided market that puts sellers in control.

In a more hopeful development, homebuilders are busy breaking ground on houses. Construction began on homes at a seasonally adjusted annual rate of 1.415 million units in September — an 11.1% increase compared with a year earlier.

October mortgage rates forecast

Mortgage rate trends have been predictable in October in recent presidential election years: Rates stood still as the mortgage industry held its breath, awaiting the result of the balloting. That has been the pattern in the run-ups to the last two elections.

  • In 2016, the 30-year fixed showed little movement in October, varying between 3.42% and 3.52% in Freddie Mac's weekly survey. Then, shortly after Donald Trump was elected, the rate abruptly started climbing, averaging 4.32% in the last week of the year.

  • In 2012, the 30-year fixed remained in a tight range in October, with weekly averages varying between 3.36% and 3.41% in Freddie Mac's weekly survey. After Barack Obama's reelection, rates dropped, then rebounded. The 30-year fixed averaged 3.35% in the year's last week.

This month began with a distressing October surprise — the news of the president's COVID-19 diagnosis. Stock prices fell in the immediate aftermath, while bond yields fell and then rose, leaving mortgage rates largely unaffected. 2016 had October surprises, too, but they appeared to have no effect on mortgage rates.

In elections before 2012, the pattern is less defined. October 2008 is an outlier because it was a tumultuous month in that year's economic crisis, and that volatility was reflected in fast-changing rates. In October 2004, the 30-year fixed established no pattern beyond zigzagging, with a high of 5.82% and a low of 5.64% that month.

In 2000, the rate barely moved in the first three weeks of October, then dipped in the last week of the month before plunging during the Florida ballot-recount turmoil that was ended by the Bush v. Gore decision. Specifically, in Freddie Mac's survey, the 30-year fixed averaged 7.68% the week ending Oct. 27, 2000,  and ended the year at 7.13%.

Back to this year: Mortgage rates fell in September, with the 30-year fixed-rate mortgage averaging 2.98% APR in NerdWallet's daily survey. The rate was down more than one percentage point from September 2019, when it averaged 4.04%. September was the fourth month in a row in which the average rate on the 30-year fixed-rate mortgage fell to a record low.

With rates so low, a lot of people are refinancing their mortgages. In the last full week of September, 63.3% of mortgage applications were from homeowners who wanted to refinance, according to the Mortgage Bankers Association. But refinances are slowly waning; the previous week, they made up 64.3% of mortgage applications.

There are still plenty of people who could benefit from refinancing. As of late summer, about 18 million homeowners were qualified to refinance their mortgages, according to Black Knight, a mortgage industry data analytics provider. These are homeowners who have good credit and at least 20% equity and who could shave at least 0.75% off their mortgage rate by refinancing.

Why are fewer people refinancing? First, a lot of motivated homeowners refinanced in spring and summer, so they already got the task out of the way. Second, interest rates for refinances haven't fallen as much as rates for purchases. As the demand for refinances drops over time, lenders might cut refi interest rates to attract more customers.

Another factor could make borrowers think twice about refinancing: the 0.5% "adverse market fee" that Fannie Mae and Freddie Mac will begin charging on certain loans they buy, beginning Dec. 1.

Even though the fee goes into effect on loans that Fannie and Freddie buy Dec. 1 and later, borrowers will begin paying it before then. The reason is that mortgages usually are sold to Fannie and Freddie a few weeks after closing. A loan closed in October might not be sold to Fannie or Freddie until December. Some lenders began charging the fee to borrowers who locked their rates in September.

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