Why Are Interest Rates So Low?

The Federal Home Loan Mortgage Corporation, known as Freddie Mac, released the results of its Primary Mortgage Market Survey on November 5, showing that the 30-year fixed-rate mortgage averaged 2.78%, the lowest rate in the survey’s history, which dates back to 1971. You might be wondering, why are mortgage interest rates are so astonishingly low?

In 2020, the outbreak of the COVID-19 pandemic caused a stock market sell-off, sending investors retreating to the relative safety of the bond market, causing average mortgage interest rates to fall because mortgage rates loosely follow the yields on 10-year U.S. Treasury bonds. As more bonds were purchased, yields went down, and mortgage rates followed. The stock market has since recovered but in order to keep the economy out of recession, The Federal Reserve has intervened in the bond market, buying up to $4.5 billion in mortgaged-backed bonds per day. This massive buyback keeps Treasury yields and so also mortgage interest rates low.

So, it is no surprise that these low rates have helped set the real estate market on fire. October mortgage purchase applications were up 24% and refinance applications were up a colossal 44% year over year. Freddie Mac forecasts that interest rates will remain at or near record lows and that housing prices will moderate throughout 2021.

What does this mean to you, the homebuyer or homeowner? The current market presents an incredible opportunity to buy or sell a home. Rising prices make selling attractive to homeowners and low mortgage rates make buying equally attractive.

Mortgage Facts

  • 30-year fixed-rate mortgages averaged 2.78%. A year ago, at this time, the 30-year fixed-rate mortgage averaged 3.69%.
  • 15-year fixed-rate mortgages averaged 2.32%. A year ago, at this time, the 15-year fixed-rate mortgage averaged 3.13%.
  • 5-year Treasury-indexed hybrid adjustable-rate mortgages averaged 2.89%. A year ago, at this time, the 5-year adjustable-rate mortgage averaged 3.39%.