Why Are Mortgage Rates Still So Low?

Tim Lucas
Tim Lucas
The Mortgage Reports Editor
August 3, 2017 - 3 min read

Mortgage Rates Solidly Below 4%

For 10 out of the last 11 weeks, mortgage rates have remained below the four-percent mark.

The national average 30-year fixed rate rose just 1 basis point (0.01%) to 3.93% on Thursday, says Freddie Mac.

You wouldn’t think rates would be this low.

The stock market just crested 22,000 for the first time in history. Companies are reporting healthy earnings.

Typically, rates rise in such an environment. But they just won’t budge. It’s a golden opportunity for mortgage shoppers to secure an affordable payment while rates are still low.

It’s All About Inflation

Mortgage rates remain calm when inflation is low.

Inflation eats into profits from the assets that back mortgages. In other words, investors lose money when they hold a low-interest note while inflation climbs.

Fortunately, inflation is coming in at just 1.5% per year, according to a release Tuesday from the U.S. Bureau of Economic Analysis. The report tracks what consumers are spending on everyday items like food, housing, and utilities.

The core personal consumption expenditures index, or “core PCE”, strips out volatile food and energy costs. This index is important because the Federal Reserve uses it to decide on monetary policy.

The Federal Reserve wants inflation to ring in at about 2% annually — but it hasn’t seen anything close to that rate since early in 2017. Since then, inflation has dropped again.

This means the Fed might be slower to raise rates, plus investors’ cash will remain intact if they continue to invest in mortgage-backed securities.

Both these factors are leading to the low rates we see today.

Low inflation isn’t the only factor when it comes to mortgage rates, but it’s a big one. As a mortgage consumer, it pays to know where inflation is headed.

How Does Freddie Mac Find Its Average Rate?

If you’ve applied for a mortgage recently, you may have noticed that you didn’t receive a rate that was anywhere close to Freddie Mac’s average rate.

That’s to be expected.

The agency polls 125 lenders each week, asking them their “perfect” rate for 30- and 15-year fixed loans, plus 5-year ARMs. The lenders’ rates assume a high credit score, decent down payment, and points paid.

The typical applicant often doesn’t qualify for a rate that low.

Plus, the agency asks about conventional loan rates only. You will get a very different (often lower) rate if you apply for an FHA loan or VA financing.

Despite the issues, though, the agency’s survey is a good gauge of the long-term direction of rates.

For instance, we see a pattern of a downward drift in 2017. Freddie Mac’s rate might be lower than what is available to most applicants, but the general direction is accurate.

Looking to lock a rate? Don’t worry that you might not get the one Freddie Mac publishes. All rates are low right now, and you’re likely going to get a mortgage rate that is lower than most applicants have received during any other time in history.

What Are Today’s Mortgage Rates?

Thirty-year mortgages have averaged more than 8% over the past 45 years. They are less than half that now.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

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