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Falling Rates Could Boost Mortgages Ahead of Spring Selling Season

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02/08/2020 | 11:44 am

By Orla McCaffrey

Mortgage rates are at their lowest level in more than three years, potentially boosting the U.S. housing market as it enters the crucial spring selling season.

The average rate on the 30-year fixed-rate mortgage, the most popular home loan in the U.S., dropped to 3.45%, according to data released Thursday by mortgage-finance giant Freddie Mac. That is down from 3.51% a week earlier and 4.41% this time last year. The average rate on the 15-year mortgage also dropped to a three-year low of 2.97%.

"It's very much a historical opportunity for folks who have an existing mortgage to refinance and for credit-qualified people to lock in a low rate," said Doug Duncan, chief economist at Fannie Mae.

Still, U.S. home prices have risen rapidly in recent years, which means many would-be owners can't afford to buy their first homes even with low rates. What's more, the low rates telegraph investors' concerns about the global economy.

Mortgage rates are closely tied to yields on 10-year Treasury notes, which recently hit their lowest level since October. That is because investors pile into safe-haven assets such as government bonds when economic growth looks uncertain. Continued concerns that coronavirus will hurt Chinese economic growth are also weighing on investors and sending rates down.

Consistently low mortgage rates have helped the market recently, pushing home sales to a high mark for the year in December, when sales of existing homes rose 3.6% over the previous month to 5.54 million. Lenders extended a greater volume of home loans in 2019 than any year since 2006, according to industry research group Inside Mortgage Finance.

The falling rates also drove up the Home Purchase Sentiment Index, a measure of consumer feelings toward the housing market, for a third consecutive month in January, according to Fannie Mae.

Nikole Fuqua and her husband, Nicholas Butler, closed on their first home in Mount Royal, N.J., two weeks ago. The couple locked down an interest rate of 3.875% in November.

Although rates later dropped, Ms. Fuqua said they are happy with what they are paying. Average mortgage rates in 2019 were the lowest since 2016.

"We just knew that the house we own was the one we wanted to grow our family in," she said. The couple's first child, a girl, is due in July.

Lower rates have also driven a bevy of refinancings. The volume of refinancing applications jumped 15% from the previous week to the highest level since June 2013, according to Mortgage Bankers Association data released Wednesday. The volume of mortgage purchase applications fell 10% from the previous week, though it was up compared with a year ago.

The reduced rates widen the pool of homeowners who could lower their monthly payments. Mortgage-data firm Black Knight Inc. estimates that 11.3 million U.S. homeowners would qualify for and benefit from a refinancing, the second-most on record. Average monthly savings would be $268.

To be sure, the Mortgage Bankers Association said mortgage credit availability dipped in January, a potential sign of stricter lending standards. But the dip could also reflect the high level of refinancings expected through the first half of 2020. Homeowners who refinance often have high credit scores, raising the average score of approved borrowers.

Low rates aren't entirely good for first-time buyers. Low rates can inflate home prices, since borrowers can afford bigger mortgages and might bid more for homes. And sluggish growth in housing supply, especially among starter homes, means homeownership could remain out of reach for many Americans, even with the drop in interest rates.

Write to Orla McCaffrey at

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