Mortgage rates hit record low as election roils market, forecasts vary
The average 30-year fixed mortgage rate to which most home loans are pegged dropped to yet another survey-record low for the year this week, amid volatility in broader markets, according to Freddie Mac.
The drop to 2.78% from 2.8% the previous week is the lowest in the history of Freddie’s survey, which began in 1971. It’s also the 12threcord low set this year.
“The election has created a lot of uncertainty, but lenders right now have thick margins so even if Treasury rates go up, I expect mortgage rates could go down further,” said Preetam Purohit, head of hedging and analytics and an assistant vice president with Embrace Home Loans.
Bond yields, which are commonly a bellwether for mortgage rates, were particularly volatile in the days leading up to and immediately following Election Day, while yield movements early Thursday were more modest, Zillow Economist Matthew Speakman noted.
However, rate movements in the mortgage market have been relatively subdued throughout the past week, Freddie Mac Chief Economist Sam Khater said in an email.
“While Treasury rates have seen some volatility due to political and economic ambiguity, mortgage rates have remained remarkably calm,” he said. “The main reason is that mortgage spreads remain elevated and as Treasury rates have moved around, they have been offset by originators that have the ability to withstand short-term changes in funding costs.”
Key to where rates may be headed is Federal Reserve policy, and there is some uncertainty in that regard when it comes to mortgage-backed securities purchases that have a bearing on long-term rates.
“The Federal Reserve has loudly and clearly committed to keeping short-term rates at the lower bound for the foreseeable future. There isn’t anything in respect to current economic data, or expectations regarding the impact from the election, that changes their plans,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.
“However, the Fed has been somewhat less clear regarding their plans of continuing to add U.S. Treasuries and MBS to their balance sheet.”
The Federal Open Market Committee’s statement released Thursday afternoon “reiterates a commitment to keep the paces of these asset purchases ‘over coming months’ but it does not provide guideposts that could lead to changes in the pace,” Fratantoni noted.
While mortgage-rate swings may be contained right now, there’s an unusual amount of disagreement related to what they portend for annual origination volume in 2020. Projections ranged from $3 trillion from the MBA and $4 trillion from Fannie Mae, with Freddie’s landing in between the two.
The discrepancy between the Mortgage Bankers Association and Fannie Mae forecasts is unusual for this late in the year, David Stevens, CEO of Mountain Lake Consulting and a former executive director of the MBA, noted in a recent tweet.
“I could see them disagreeing if it was February,” he said in the tweet.
But the magnitude of the difference is unprecedented, Stevens added in an email, when asked how it compares historically.
“It’s not unusual for economists to have different views of the market size but to be nearly $1 trillion with just a couple of months left in the year has never happened before in any forecast,” he said.
Back in September, the MBA acknowledged a discrepancy with Fannie’s forecasts, noting that it reflected uncertainties related to the coronavirus, differences in how the two entities view where rates are headed, what the refinancing response to rates will be like, and capacity issues.
New outlook reports typically come out mid-month, so the forecasts do not yet reflect the results of the election.
The pandemic introduced tremendous uncertainty into the market this year and was the likely cause of the unprecedented disparities in forecasts, Purohit said. Because his company has the margins and capacity to continue providing competitive rates for consumers, he expects its originations to be more in line with projections for a higher-volume market.
“We have a lot of volume and we can add a lot more,” he said. “I think, as an industry, this is a blowout year.”