What Will Happen To Home Mortgage Interest Rates After COVID-19?

April 29, 2021

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8
Min Read
Aerial view of American neighborhood and homes.

Rates Are At The Lowest Of All Time—But Where Will They Go?

Trying to predict the trajectory of the COVID-19 pandemic, and the resulting interest rates, is a bit like trying to nail Jell-o to the wall. There are so many factors at play. Fortunately, real estate is much steadier and slower to react than the stock market, and fluctuations can yield good fortune for some. Home mortgage interest rates are at a record low right now, which is good news for both buyers and sellers.

Quick Plan

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Consider current market forces due to COVID-19

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Understand the benefits and risks of buying or selling now

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Make an informed decision to get into the real estate market

But First—How We Got Here

The previous record for lowest rate on a 30-year fixed mortgage was 3.31% in 2012. At the time of this writing, it has fallen to 2.88%. That’s the lowest rate since Freddie Mac began tracking mortgage rates in 1971.

Mortgage rates have remained consistently low since the 2008 recession, hovering around 4% on average over the past five years. Before the pandemic, some mortgage experts actually expected interest rates to climb to between 5% and 6% in correlation with increases to the federal funds rate. But due to COVID-19 recovery efforts aimed at economic stimulus, rates have instead dropped to a historic low.

Generally, home mortgage rates fluctuate depending on a variety of external circumstances, including mortgage-backed securities and U.S. Treasury yields. Due to coronavirus, the mortgage rates have dropped in an effort to increase financial activity. During this time, demand for housing stock has increased and housing prices have remained steady. This offers potential opportunities for home buyers and the ability for sellers to see a return on their real estate investments.


Due to COVID-19 recovery efforts, mortgage rates have dropped to a historic low.


What Home Buyers—and Sellers—Can Expect

COVID-19 lockdown restrictions have left many people longing for larger homes outside of urban areas, driving up demand for housing stock in suburban and rural areas. With so many staying home and working remotely, the need for a comfortable place to live with enough space to work has become urgent.

Coupled with lower-than-ever interest rates, the current market offers many opportunities for home buyers—with a few caveats.

Due to continuing economic uncertainty and rising infection rates, mortgage rates are continuing to face downward, with some experts projecting a drop to around 2%. This can be a great opportunity for a well-qualified buyer.

Faced with increased demand for new home mortgage loans and refinances, many lenders are tightening their lending requirements and seeking more qualified buyers for loans. This means that buyers need higher credit scores and lower debt-to-income ratios to get approved.

Home prices are holding steady due to increased demand for housing stock, but prices may still fall if there is a drop in qualified buyers. On the other hand, any downturn in home prices may be restricted to the high-end luxury real estate market, with lower- to mid-range home prices remaining steady.

With so much uncertainty, both buyers and sellers will find it difficult to time the market. For homebuyers, it may be tempting to wait for lower rates or to see how home prices respond. Sellers, especially those who plan to purchase another home, may also feel wary of making a move during a pandemic. But there are other reasons—including job relocation, outgrowing a current home, and personal circumstances—to get into the real estate market.

For homeowners thinking about refinancing their current mortgages, now is also a good time to take advantage of low rates. Although interest rates may drop lower, it is equally possible that they may climb back up due to sustained economic recovery.


Taking action carries a risk, but so does waiting. With rates at an all-time low, now is a good time to make a move.


Finding the Right Time to Sell

Making the decision to sell your home depends on more than market factors. If you have an urgent need to relocate or a change in family circumstances, the decision may already be made for you. But if you have the flexibility to time your sale to see the best return on your real estate investment, there are a few factors to consider before contacting an agent to list your home.

Because the housing inventory has dropped below increasing demand for new homes, the current market is considered a seller’s market. That means there are more advantages for those selling a home than buying a new one.

The current low interest rates and pressure on lenders to qualify buyers means that more prospective buyers for your home will be able to afford the upper end of your home’s market value and be able to carry the sale through to closing. High demand for properties also introduces competition that favors the seller. All that to say, now is a good time to sell, and waiting much longer may mean a dip in home values and demand, as well as an increase in rates.

Before listing, sellers should give some thought to their next moves. Home sales are moving fast, so homeowners may find that they close on the sale of their previous home before they are able to find a new one.

Since income security may be affected by the pandemic, sellers should also consider their future prospects for affording a home and if renting for a while may be the best move. Timing a move can also be logistically difficult, especially if alternative plans to stay with family fall through due the virus.


Now could be a great time to sell, and waiting much longer may mean a dip in home values and demand, as well as an increase in rates.


Selling in the Age of COVID-19

Aside from the financial considerations, there’s one key aspect of selling a home that has become far more complicated in light of the coronavirus pandemic: prospective buyers want to see the house. For sellers who are still living on the property, this may pose some logistical difficulties.

Although some real estate agents have introduced virtual tours as a work-around to open houses and showings, it remains difficult for prospective buyers to commit to making an offer without seeing a home in person. You can’t get that gut feeling about a new home from pictures or even a virtual tour.

Some recent contracts of sale also include a coronavirus clause that allows either party to back out of an offer, especially if the buyer hasn’t been able to see the home in person. Though it can be useful as a last resort, this isn’t an ideal option because it means that the deal can fall through at any time.

Unless someone in the household is especially vulnerable or immuno-compromised, the best strategy for sellers is to work with a trusted agent and take precautions for home showings. Open houses may be out of the question, but an agent can still show the home by limiting the number of people walking through and ensuring that everyone wears masks and gloves, and uses hand sanitizer.

In addition to encouraging the use of hand sanitizer, the agent should ask prospective buyers to exchange shoes for disposable booties, and should turn on any lights and open any closet doors themselves (while wearing gloves) to limit the amount of touching on surfaces. Afterwards, both the seller and the agent can disinfect surfaces like doorknobs, light switches, and any other high-touch areas.

For sellers who prefer giving a virtual tour, or if a virtual tour is the only option to show the home, using high-quality equipment and staging the home can help generate interest in prospective buyers. The fewer impressions prospective buyers have of a home, the more each one counts.

Fortunately, several states now also allow for remote closings, ensuring that the sale can be completed even if it’s not possible for all parties to attend in person.


The best strategy for sellers is to work with a trusted agent and take precautions for home showings.


Consider Making Careful Moves

No one knows exactly how the coronavirus pandemic will shape the real estate market over the next year. But currently, market indicators point to it being a good time to buy or sell a home—with a few reservations to bear in mind.

If you have reason to believe your income will remain steady over the long term and you have personal reasons for wanting to buy or sell, use this historic dip in home mortgage interest rates to your best advantage. Take stock of the current market, seek the advice of trusted experts, and make the move you’ve been waiting for.

Ready to make a move? Check us out at Lower.com to get a great, lower rate. (And a whole lot more.)



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