Record-breaking mortgage rates: how low could they go?

Published July 22, 2020
Brendan Phillips
by Brendan Phillips

mortgage news 7/20

Here’s a look at the latest developments in the mortgage market for the week beginning 7/20/20.

  • Record-breaking rates: how low could they go?
  • The top 10 cities for millennial homebuyers might surprise you
  • Homebuilding is up 17% — is a new construction home right for you?
  • New data suggests higher credit standards for mortgage applicants
  • Better Mortgage CEO ranked 13th in the US by employees of color

Record-breaking rates: how low could they go?

Already all-time low mortgage rates dropped below 3% for the first time in history this week, even while the bonds that usually underlie falling rates remained steady. This trend is a return to a smaller, more “normal” gap between mortgage rates and bond yields that we last saw before March. This slow, steady decline follows the increase in lenders’ capacity to originate mortgages; if they lowered rates too quickly, they would be flooded with more applications than they could handle.

Still, some economists believe that rates could drop as low as 2.75%, but warn against holding out for that scenario. Economic uncertainty can cut both ways, causing rates to rise or fall depending on the market’s response.

Even if rates do continue to tumble, it’s highly improbable that we’ll see ultra-low 2% 30-year mortgage rates any time soon. Because of the way mortgages are traded on the secondary market, rates would face a lot of resistance before dropping below 2.75%, and would hit a hard floor at 2.25%.

While we wait to see how rates will be affected by economic news, one thing is certain: homeowners and homebuyers alike continue to take advantage of these record-low lows, with purchase applications up 33%, and refinancing applications rising another 11% last week.

The top 10 cities for millennial homebuyers might surprise you

While there’s evidence to suggest a trend toward suburban homes, urban centers are still attracting more millennials than less central areas according to data from new home loan applications at Better Mortgage.

Here are the top ten cities for millennial homebuyers, based on new home application volume from March to July 2020.

  • Chicago—Median home value is $249,152
  • Austin—$401,999
  • Houston—$191,907
  • Charlotte—$252,438
  • Los Angeles—$752,508
  • Atlanta—$299,308
  • Seattle—$767,906
  • Denver—$465,466
  • San Diego—$679,568
  • Phoenix—$269,175

The data suggests a mixed bag of priorities among this population of prospective homeowners. Affordability appears to be a main decision driver, but location still matters; up-and-coming local economies, as well as already booming tech hubs, make up the lion’s share of the list. Some more expensive areas, like Los Angeles, Seattle, and San Diego made the cut, but “sweet spots” with relatively low housing costs and plenty of opportunity rose to the top.

Price conscious house hunters continue to take advantage of historically low mortgage rates, as evidenced by this summer’s spike in purchase activity, but new demand is driving costs up; home sale prices saw a 3% year-over-year increase in June.

Homebuyers who are considering a change of scenery can see customized interest rates and estimated monthly payments by location, with no hard credit check required, at Better Mortgage. Pre-qualify in minutes here, and we’ll crunch the numbers for you.

Homebuilding is up 17% — is a new construction home right for you?

As demand continues to outstrip supply, reports of an urban-to-suburban shift among first time homebuyers has contributed to another growing trend; new home construction saw a 17% boost last month.

The rise in home building opens up options for prospective homebuyers, but the decision-making factors involved with new construction homes vary from those of resale purchases — and the mortgage process tends to be a bit more complex.

If you’re considering going the new construction route, our thorough FAQ on the topic is a good place to start.

New data suggests higher credit standards for mortgage applicants

Average FICO scores on all closed loans increased in June, according to Ellie Mae. Coupled with their finding that closing rates decreased, this could represent lenders getting stricter with who they extend credit to.

While this news may be discouraging for would-be borrowers with less-than-perfect credit, understanding the metrics that lenders use to determine loan eligibility, and how you can improve on them, is a good way to get a realistic sense of your mortgage prospects before you apply. CEO ranked 13th in the US by employees of color

According to an anonymous third-party survey of employees of color, CEO, Vishal Garg ranked 13th on Comparably’s top 25 list for 2020.

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