It’s looking like it could be a really good summer for mortgage rates, after a very uncertain spring made it appear as if the best we had seen was gone forever.
Now this isn’t to say that mortgage rates will hit all-time record lows again, but the fact that they’re slipping back to those levels, even as inflation concerns grow, is a positive.
Mortgage Rates Ebb and Flow Throughout the Year
- The 30-year fixed has fallen back below 3% and is currently averaging 2.96% per Freddie Mac
- It was as high as 3.18% in early April when it appeared the best levels were a thing of the past
- Now we seem to be enjoying a low-rate trend that could get even better as summer progresses
- There are often periods of strength and weakness with mortgage rates (aka opportunities for borrowers)
If you watch mortgage rates for long enough, you’ll notice that they ebb and flow, just like stocks or other investments.
This is because the mortgage-backed securities (MBS) that drive these prices are actual investments for the traders who purchase and sell them.
There are periods of strength and weakness, which often last weeks or even months, where it seems they either have nowhere to go but up or down.
It can be emotional and psychological, similar to the stock market where traders rush to close their positions after a bad week , only to panic and buy back in as prices rise again.
When we compare that to mortgage rates, it could be the homeowner who locks their rate after a period of rising rates, only to find that the trend reverses.
Of course, it’s very difficult to time the market, so I don’t fault anyone trying to determine that right time to lock it in, or alternatively float for an even better rate.
The point is that often when all hope is lost, there’s a reversal, which seems to come out of nowhere.
That appears to be the case over the past couple weeks, with the 30-year fixed now averaging 2.96% per Freddie Mac, basically its lowest point since February.
If all goes well, we could see it fall back to those early 2021 levels, where it was as low as 2.65% in January.
Mortgage Lenders Are Going to Get Aggressive as Business Slows
- The traditional home buying season is now coming to a close as summer begins
- For mortgage lenders coming off record quarters this means severely reduced loan volume
- Fewer home purchase loans and dwindling refinances could force them to lower their interest rates to drum up business
- This means they’ll pass more savings onto consumers while reducing their own margins
While the technicals underpinning mortgage rates have been improving for a few weeks now (10-year bond yield back at its lowest point since March), another seasonal dynamic might be working in our favor.
As we approach summer, everyone slows down, gets fatigued, and goes on vacation. Most businesses don’t look forward to this time of year unless they’re in the tourism industry.
This is especially true of real estate and mortgage, as both tend to peak in spring during the traditional home buying season, before grinding to a halt in the warmer months.
Knowing this, mortgage lenders will be forced to get more competitive if they want to keep volume up, an especially difficult task given their record business in the first quarter of 2021.
Ultimately, it’s going to be very tricky for them to keep up the momentum, especially since most homeowners already refinanced, and home sales are being held back by a major lack of inventory.
So what is a lender to do? Well, lower their mortgage rates obviously!
They’ve got profit margins they can play with, and instead of making a ton of money per loan, they can sacrifice some to keep the business coming in.
This might even be more pronounced than usual because lenders have been busier than ever, which allowed them to keep rates artificially inflated.
We Are Entering the Historically Better Time of Year for Mortgage Rates
- Mortgage rates tend to be highest in April when consumer demand for home loans is strongest
- Lenders are often busiest during this time of year and charge a premium as a result
- Once their business slows down they’re essentially forced to become more competitive
- Rates usually drop as summer progresses and are cheapest in winter
After some research, I discovered that mortgage rates are highest in April, then tend to cruise lower throughout the second half of the year.
While they seem to be cheapest in winter, specifically the month of December, they get pretty low around late summer and early fall too.
This is yet another reason why the best time to buy a home is in August/September.
Anyway, if this trend holds in 2021, we could see the 30-year fixed fall back to those record low levels seen in January.
As noted, we might see even more improvement than in other years due to a major slowdown in business, which should force lenders to compete more aggressively than usual.
For example, United Wholesale Mortgage, the nation’s largest wholesale mortgage lender, recently announced a price match through the month of June.
This tells me they’re doing their best to pick up the expected slack and other lenders will likely follow suit, including the retail banks.
For borrowers, this is great news. If you missed your chance to refinance, or were on the fence about it, you might get a good opportunity this summer or later in the year.
And those who have yet to purchase a home might be able to offset the sky-high price tag with an ultra-low mortgage rate again.
Of course, low rates might be a bit of a double-edged sword for home buyers as they just stoke the flames of an already red-hot housing market.
Read more: 2021 Mortgage Rate Predictions
(photo: Michael Frascella)