Mortgage rates are sub-3%. How will buyers and lenders react?

“Many banks are nervous to lend in a market where employment is volatile,” said one mortgage lender


Uncertainty, the very thing that drove the average rate on a 30-year fixed mortgage to a record low this week, could prevent millions of prospective homeowners from pulling the trigger on a purchase.

“The rates are great,” said Al Fazio, a real estate attorney in New York City. “Although everyone remains concerned about what tomorrow will bring,” regarding the economy and coronavirus.

The 2.98 percent average rate on America’s most popular home loan is the lowest in half a century, according to Freddie Mac, the nation’s largest owner of residential mortgages. But amid the continued economic volatility, banks have been ratcheting up lending standards on home purchases, choosing to focus on refinancing.

Since reaching a recent high of almost 5 percent in 2018, the amount of interest banks earn on home loans has steadily fallen, roughly tracking the return on 10-year Treasury bonds.

“Many banks are nervous to lend in a market where employment is volatile,” said Alan Rosenbaum, CEO of mortgage lender GuardHill. “With the virus surging in different geographic areas at different times, some are very busy and some are sitting on the sidelines for now.”

Households buoyed by stimulus checks have sought liquidity to cope with the financial threat of the virus, making lending less costly to banks. Customer accounts at Bank of America, Citigroup, and JPMorgan Chase held 23 percent more deposits in Q2 than the same quarter last year, according to the Wall Street Journal.

Current homeowners may be able to refinance their mortgage at a lower rate, but banks are hesitant to let customers withdraw equity as part of the renegotiation, according to Fazio.

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“Banks are not doing cash-out refinancing,” he said. “They are wary of taking on more debt because they don’t know what the market is going to bring.”

Meanwhile, the pandemic has also upended the brokerage business, as states and cities scrambled to determine how best to conduct residential transactions while maintaining social distancing. Virtual tours were in, home showings were out, and deals were down. Now, an increasing number of states that have reopened their economies are experiencing a spike in Covid-19 cases.

Home sales fell 17.8 percent in April from the month prior, and dropped nearly 10 percent more in May, according to the National Association of Realtors.

Despite those declines, Rosenbaum said a sub-3 percent rate represents an important psychological line. The new record low should help motivate renters to buy, and existing homeowners to trade up, he said.

A homebuyer who takes out a $200,000 mortgage at the current 2.98 percent rate would save $32,000 over the life of the loan, compared to the same buyer who nabbed that loan at 3.72 percent six months ago.

And with lower rates translating to long-term savings, buyers may qualify for larger loans, allowing them to expand their property price range.

But Fazio, a partner at Capuder Fazio Giacoia, said the market won’t see a sudden shift in homebuying. “If [a home] didn’t sell at three-and-a-half percent, it might not sell much quicker at 3 percent,” he said.

Contact Orion Jones at