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Why Aren’t Mortgage Rates Even Lower? | Realtor Magazine

The Federal Reserve issued an emergency rate cut on Tuesday amid growing fears over a U.S. outbreak of the COVID-19 disease. The 10-year Treasury note, which mortgage rates follow, plunged to a record low last week. Mortgage rates are already hovering at 2016 lows, but some financial experts say rates should be much lower.

Last week, Freddie Mac reported the 30-year fixed-rate mortgage averaged 3.45%, down from 4.35% a year earlier.

Mortgage rates are trending down, but they aren’t as low as the 10-year Treasury indicates, Bankrate reports. Factoring in 10-year Treasury rates, mortgage rates should be averaging around 3.2% or 3.1%, Lawrence Yun, chief economist for the National Association of REALTORS® told Bankrate.com.

“There are a few possible reasons rates aren’t lower,” Yun explains. “Lenders might think this is a good profit opportunity, assuming borrowers don’t care about a few basis points. Another reason would be for lenders to close the gates on customers as more people want to refinance and they don’t have the resources to manage an influx of new loans. And the third possible reason is the future of Fannie and Freddie’s government guarantee.”

Other financial experts also suggest the larger spread between the 10-year Treasury and mortgage rates is that lenders could be fearing that an outbreak of the disease could lead to a slowdown in the world economy or make mortgage-backed securities riskier (if more people then become late on paying their mortgage or default).

Nevertheless, “the fear gripping markets is driving bond yields sharply lower, with mortgage rates dropping, though not in lockstep,” says Greg McBride, Bankrate’s chief financial analyst. “Home buyers and those looking to refinance will find this an opportune time to lock in a rate at one of the lowest levels we’ve ever seen.”


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