- The average 30-year fixed mortgage rate hit record lows in 2020, and dropped below 3% for the first time ever in July, per Freddie Mac.
- In 2021, experts predict, the average 30-year fixed rate will rise slightly, rounding out at anywhere between 3.2% to 3.4% by the new year.
- Weekly averages are expected to float in the 2% range for a few more months, breaking the 3% threshold in the spring, industry veterans told Insider.
- Visit Business Insider’s homepage for more stories.
Low mortgage rates have contributed to an active housing market over the last several months, with markets across the country recording skyrocketing home prices.
Freddie Mac, the popular loan company that surveys weekly mortgage data, has reported low 30-year fixed rates since the onset of the pandemic.
In July, for the first time ever, Freddie Mac said that the average 30-year fixed rate fell below 3% to 2.98%— a .83% drop from the same time last year.
Since then, Freddie Mac’s weekly measures have remained under 3%, hitting 2.66% last month. However, after Democrats won two Senate seats in Georgia to take control of both the White House and Congress, the average rate climbed up to 2.79% as of January 14 — the highest rate measured in two months.
(The 30-year fixed rate, which is the most popular mortgage product, is a go-to benchmark for the industry.)
Rates are expected to float in the 2% range for a few more months, however, according to Realtor.com’s chief economist Danielle Hale and New York-based executive mortgage banker Melissa Cohn.
The days of record lows are likely behind us
Industry experts believe rates will rise — at least slightly — thanks to COVID-19 vaccine distribution and unified Democratic control of the White House and Congress, which increases the odds of significant government spending and stimulus. Those moves, in turn, should bring up mortgage rates.
The average 30-year fixed rate is expected to land somewhere between 3.2% to 3.4% by the end of 2021.
But the increase aren’t likely to drastically impact the bustling home sales market, experts predict, since those figures are still lower than pre-pandemic rates.
How long will rates stay under 3%?
Attention, homeowners, prospective homeowners, and those eager to refinance at low rates: The chief economist at Realtor.com, Danielle Hale, told Insider that she predicts the Freddie Mac 30-year fixed rate will break the 3% threshold in late spring.
“We expect that this year, the housing market will have a very different spring season than last year — which is probably a huge understatement,” she said, referring to when the onset of the pandemic shut down the industry in March, April, and May of 2020.
Industry leaders have done a good job taking showings, negotiations, and transactions virtual or socially distanced to align with COVID-19 safety regulations, she continued. And because buyer appetite for single-family homes, which ratcheted up as the pandemic boosted demand for more square footage and outdoor space, continues to be robust, busy lenders will have more wiggle room to increase rates.
Macroeconomic factors, like the expected stimulus from the Democratic government, could also add upward pressure to rates.
“We have Biden, we have a Democrat-led senate, and that means economic stimulus which means inflation and higher interest rates,” Melissa Cohn, an executive mortgage banker at William Raveis Mortgage, told Insider.
Rates are expected to rise above 3% again in the spring
Like Hale, Cohn believes the 30-year fixed rate will likely break the 3% threshold in the springtime.
She points to the an increase in the 10-year Treasury yield, which usually indicates that mortgage rates will follow.
The day following the Democrats’ flip of the Senate earlier this month, the 10-year Treasury yield climbed above 1% for the first time since March and the average 30-year fixed mortgage rate climbed to 2.86%, Yahoo Finance reported.
“There is a mixed bag of expectations as to how much higher rates will go this year. Some pundits expect the 10-year bond yield to rise to 2% by the end of the year, and others expect it to cap at around 1.50%. Either way, we can expect mortgage rates to breach the 3% mark at some point this spring,” Cohn wrote in her recent newsletter. “To put that in perspective, mortgage rates averaged 3.625% in January of 2020 — and at that time, we thought that was a great deal!”
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