- California mortgage rates dropped below 3% this week.
- That was the average interest rate for a 30-year fixed home loan.
- It’s only the second time in history when the average dipped that low.
- Low mortgage rates are fueling home-buying demand across the state.
- This is based on research by California-based Home Buying Institute.
We have good news for California home buyers considering a purchase, and for homeowners thinking about a refinance. The average rate for a 30-year fixed mortgage dropped below 3% this week, for only the second time in history. That’s based on the long-running weekly survey conducted by Freddie Mac.
California Mortgage Rates Sink Again
Earlier this month, 30-year mortgage rates fell below 3% for the first time in history. And in this context, “history” refers to the 50 years that Freddie Mac has been running this particular survey. So we’re talking about a significant milestone here.
Rates have bounced around a bit since then, as they always do. But they continue to hover within the 3% range for a 30-year fixed mortgage.
According to the research team at Freddie Mac:
“Rates continue to remain near historic lows, driving purchase demand over 20 percent above a year ago. Real estate is one of the bright spots in the economy, with strong demand and modest slowdown in home prices heading into the late summer. Home sales should remain strong the next few months into the early fall.” –Freddie Mac PMMS report, July 30, 2020
The chart below shows the average rate for a 30-year fixed mortgage over the past year. As you can see, they’ve followed a more-or-less downward trend in recent months.
A year ago, 30-year home loan rates were clocking in at 3.75%, on average. They hovered between 3.5% and 3.75% through the last two months of 2019. Then, at the start of 2020, California mortgage rates started to drop sharply. And in the weeks since the pandemic reached U.S. soil, the trend has been mostly downward once again.
Some forecasters are now predicting that rates could drop even further as we move into late summer and early fall. So the current record low for mortgage rates, set during the week of July 16, might not last for much longer. All in all, it’s good news for California home buyers and refinancing homeowners.
Federal Reserve Policy Favors Borrowers
In related news, the Federal Reserve’s policy-making group met earlier this week. The Federal Open Market Committee (FOMC) announced that they would be keeping the federal funds rate near 0% for the foreseeable future. They are doing this as part of a broader economic stimulus package.
Federal Reserve policy does not affect California mortgage rates directly. But they do have an indirect influence by shifting investor demand from one area to another.
The short version of the story is that we can probably expect to see California mortgage rates hovering within their current low range over the coming months. And that’s partly due to Federal Reserve stimulus actions.
So that’s the key takeaway. California mortgage rates have sunk to record low levels, and that downward trend has increased demand for homes across the state. This is partly why the real estate market continues to surprise economists by performing well, in spite of the COVID-19 pandemic.
As it said in the above quote, the real estate market is one of the “bright spots” in the economy right now. And the super-low mortgage rates in California and nationwide are a contributing factor.
Fueling an Increase in Home Sales
According to a recent report from the California Association of Realtors (C.A.R.), single-family home sales rose by 42.4% from May to June 2020. That’s a significant increase.
There are three primary reasons for this uptick in home sales.
- The low California mortgage rates mentioned above obviously play a role. They offer a strong enticement to buyers across the state.
- The May-to-June sales increase was also fueled by the gradual economic reopening that took place at that time. Unfortunately, the reopening has been rolled back due to a rise in COVID-19 cases. So we could see a drop in home sales going forward.
- The California housing market is also being helped by the ongoing evolution of the real estate and mortgage industries, which have adapted to the crisis. The entire home-buying process can now be handled digitally and remotely. This reduces the need for face-to-face contact and allows sales to continue, despite the coronavirus.
The statewide median home price hit a record high in June, rising to $626,170. According to C.A.R.’s chief economist Leslie Appleton-Young:
“A new record high in the statewide median price suggests that there is stronger housing demand from more qualified, affluent buyers in this extremely favorable lending environment.”
Forecast: Low Rates For the Foreseeable Future?
So, California mortgage rates are currently hovering near their lowest point ever. This has had a positive effect on home sales across the state, increasing demand at a time when you might expect it to decline.
But what does the future hold? According to recent forecasts issued by two prominent industry groups, California home buyers could continue to see low mortgage rates through 2020 and into 2021. Of course, forecasts are far from certain. So bear that in mind.
In its most recent long-range forecast, the Mortgage Bankers Association predicted that 30-year loan rates would average around 3.4% in the first half of 2021. The housing and economic research team from Freddie Mac issued a nearly identical forecast. Both groups expect home loan rates to hover in the mid 3% range during the first half of next year.
A Good Time to Purchase or Refinance
Clearly, home buyers and homeowners in California have taken notice of these recent mortgage rate trends. Many homeowners across the state have refinanced their existing home loans to take advantage of today’s record low rates. And many more could do so over the coming weeks and months.
At the end of June, the mortgage data company Black Knight reported that approximately 8.2 million U.S. homeowners with mortgages were in a position to benefit from a refinance. Mortgage rates have come down a bit since then, and could fall even further over the coming weeks. So the number of refinancing candidates is probably even higher today.
On the home-buying front, buyers can take advantage of current California mortgage rates by locking in with a long-term fixed home loan.
The 30-year fixed mortgage is the most popular loan option in California and nationwide, and by a wide margin. Home buyers enjoy the long-term security and predictability that comes with this type of loan. And with California mortgage rates now hovering around 3%, it could be a great time to think long-term with your financing strategy.
Disclaimer: This story contains mortgage rate forecasts issued by third parties not associated with the publisher. Such forecasts are the equivalent of an educated guess and should be treated as such. Home Buying Institute (HBI) makes no claims or assertions about future economic conditions.