The average interest rate on a 30-year fixed-rate mortgage fell to 2.86% this past week, according to Freddie Mac. That’s the lowest level in the nearly 50 years of the mortgage giant’s survey. The 15-year fixed-rate mortgage dropped to 2.37%.
“Mortgage rates have hit another record low due to a late summer slowdown in the economic recovery,” said Sam Khater, Freddie Mac’s chief economist.
These low rates have helped generate strong demand for home sales, Khater said. But he warned that level of enthusiasm for home buying will be hard to maintain.
“Heading into the fall, it will be difficult to sustain the growth momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity,” he said.
Nevertheless, purchase activity remains strong, said Joel Kan, the Mortgage Bankers Association’s associate vice president of economic and industry forecasting. Applications for new mortgages during the week ending on September 4 were up almost 3% from the week before. The average loan size continued to grow, hitting $368,600, the highest amount since MBA began tracking in 1990.
“Home buyers continue placing offers on homes, pushing existing inventory toward historic lows,” said George Ratiu, Realtor.com’s senior economist. “Would-be sellers are stuck in their homes, struggling to find their next house amid a dearth of supply, further contributing to the decline in inventory.”
And the limited supply of homes is lifting prices even higher, said Ratiu.
Mortgage rates sparking refinancing
The new record low interest rate also has an impact on the number of homeowners who can potentially refinance their existing loans.
There are now 19.3 million high-quality refinance candidates, according to Black Knight, a mortgage data company. This is the largest group of this kind there has ever been, the firm reported, representing 43% of all 30-year mortgage holders
Black Knight defines high-quality refinance candidates as 30-year mortgage holders with credit scores of 720 or higher who hold at least 20% equity in their homes, are current on their mortgage payments and who stand to shave at least 0.75% off their mortgage rate by refinancing.
The average savings for those 19.3 million homeowners is $299 a month, according to Black Knight.