Volatile coronavirus and no stimulus means lower mortgage rates ahead

Thirty-year rates hit their 12th record low of 2020, a trend likely to continue next year.

So, how is the COVID-19 pandemic affecting mortgage rates this year?

Freddie Mac reported Thursday, Nov. 5, that rates fell to their 12th record low of 2020, with the 30-year fixed-rate landing at 2.78%.

Freddie Mac Chief Economist Sam Khater attributes this latest record to “economic and political ambiguity.”

Southern California rates generally run about one-quarter percent lower than Freddie’s national average due to larger loan amounts and the fiercest competition in the country.

And this week, Black Knight announced that total U.S. mortgages will easily surpass $4 trillion. The previous record was $3.8 trillion in 2003. Purchase lending is predicted to be at its highest level since 2005.

The Mortgage Bankers Association refinance index was a stunning 88% higher than a year ago — and last year was a good year for refi’s.

Are there even lower rates to come next year?

Here’s what some experts had to say.

Lending Tree Chief Economist Tendayi Kapfidze sees a 30- to 40-basis point mortgage rate decline next year.

“There is no catalyst for rising rates. Lower for longer is the mantra,” he said. “The economy is the virus. And the virus is the economy.”

Mark Zandi, chief economist at Moody’s Analytics said a double-dip recession could occur.

“We have a world of hurt as the pandemic has intensified,” said Zandi. “A double-dip recession possibility is very high.”

Zandi also thinks the Fed will work hard to keep mortgage rates under 3%.

The demand for homes and the runup in home prices is because people think things are going to be fine pretty soon, according to Anil Puri, director of Cal-State Fullerton’s Wood Center for Economic Analysis and Forecasting.

“What we’ve seen in the housing market (this year) is not bulletproof. The federal government and the Federal Reserve need to create more stimulus,” said Puri. “The virus is getting worse, creating more economic hardship. There is a direct link with housing prices, employment gain and income gain.”

Michael Pento, president and founder of Pento Portfolio Strategies, sees rates going profoundly lower if there is no stimulus.

“The 30-year fixed will go to low 2% either this year or early 2021,” he said.

But Raymond Sfeir, director of the Anderson Center for economic research at Chapman University, thinks 2021 will be a good year, with positive economic growth and rising employment.

What about mortgage rates?

“Oh boy,” he said. “It will be 3% to 3.1% for the first half of the year, increasing slightly to 3.3% by the end of the year.”

Zandi added that the housing market has performed much better than he expected during the pandemic because of a shift in housing preferences. For example, people are moving away from the big cities and high-end urban apartments. Folks are spreading out, going exurb. That is, more suburban and rural into smaller cities.

“The real test will be when rates start to rise,” Zandi said.

Sample Image

Jeff Lazerson - Mortgage Columnist since 2011