Long-term U.S. mortgage rates have sunk to a record low, giving many homeowners an opening to refinance their loans to free up money to spend or save.
The average rate on a 30-year fixed mortgage hit a record low of 3.29% this week from 3.45% last week, mortgage buyer Freddie Mac said Thursday. The decline is being driven by investors shifting money out of the stock market and into the safety of U.S. Treasurys as the coronavirus outbreak has deepened. Long-term mortgage rates tend to track the yields on the 10-year Treasury note, so they typically fall in tandem.
The new 3.29% average rate is the lowest for a 30-year fixed mortgage since Freddie Mac started tracking such rates in 1971.
A steady decline of mortgage rates has created a potential boon for would-be home buyers as well as for homeowners who can refinance into lower-rate loans. Refinancings can lower monthly payments and in some cases allow homeowners to tap additional cash from the equity in their home.
While rates have been historically low for years, every decline makes refinancing appealing to more people. Homeowners who plan to stay put can benefit most. Refinancing typically costs several thousand dollars in closing costs and other fees. But over time, saving a hundred or few hundred a month in monthly mortgage bills adds up.
The housing market is a key pillar of the U.S. economy, so any increase in purchase and refinancings could provide economic support. More money in the pockets of households tends to drive up consumer spending, the U.S. economy’s primary fuel.
Yet ultra-low mortgage rates aren’t likely to produce a significant rise in U.S. home sales this year. A major problem is that the supply of homes for sale remains at historic lows.
“We’ve had inventory for the last eight months basically shrinking each year-over-year by double digits,” said George Ratiu, senior economist for Realtor.com. “No matter how much buyers want to buy, there are not enough homes.”
Even where homes are available, prices are still unaffordable for many despite lower mortgage rates.
The new record-low mortgage rate came in a week when the Federal Reserve made a surprise cut in its benchmark rate to aid the economy in the face of the spreading coronavirus.