Mortgage rates drop near 3%, offering refinance opportunity for some homeowners

Janna Herron
·Editor
·3 min read

Mortgage rates fell for the second straight week, closing in on 3% again and providing yet another window for homeowners to refinance.

The rate on the 30-year fixed mortgage slipped to 3.04% from 3.13% the previous week, according to Freddie Mac, a government-sponsored agency that backs millions of mortgages. A year ago, the rate stood at 3.31%.

"Even though recent data show signs of rising inflation, Chair Powell and others at the Federal Reserve expect this to be temporary. Investors seem to agree," said Danielle Hale, chief economist of Realtor.com. "If investors expected higher inflation, they'd be driving interest rates, including mortgage rates, higher. On top of this, with the possibility of slower vaccine rollout in the near term and the economic uncertainty that could cause, rates drifted lower this week."

Hale called the decline "temporary" and expects rates to resume their earlier upward trend. Similarly, Freddie Mac forecast rates to hit 3.2% for 2021 in its quarterly forecast.

(Credit: Freddie Mac)
(Credit: Freddie Mac)

Refinance opportunity opens up

The decline provided an opening for more homeowners to refinance their mortgages at lower rates. 

At this week's rate, over 13 million high-quality homeowners could shave at least three-quarters of a point off their current rate, an increase of 2 million from last week, according to data provided by Black Knight, a mortgage technology and data provider. 

On average, those homeowners could save $283 a month, Black Knight found, with 2.5 million saving at least $400 a month and 1.5 million saving $500 or more each month.

(Credit: Black Knight)
(Credit: Black Knight)

Refinance activity has waned as rates marched higher after hitting an all-time low of 2.65% in the first week of January. The volume of refinance applications decreased 5% last week from the previous week and was 31% lower than the same week a year ago, according to the Mortgage Bankers Association (MBA).

“Many borrowers have either already refinanced at lower rates or are unwilling – or unable – to refinance at current rates," said Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a press release Wednesday.

'Big step in the right direction'

On the home-buying front, lower rates are good news, but buyers still face major obstacles to homeownership — namely low supply and double-digit price gains.

Freddie Mac estimated that the U.S. housing market needs an additional 3.8 million single-family homes to meet the nation's current demand. That's a 52% increase in the inventory shortfall from 2018, the first time Freddie calculated the shortage.

WASHINGTON, D.C. - AUGUST 8: A home sale sign in the Eckington neighborhood of Washington, D.C. on Saturday, August 8, 2020. (Photo by Amanda Andrade-Rhoades/For The Washington Post via Getty Images)
WASHINGTON, D.C. - AUGUST 8: A home sale sign in the Eckington neighborhood of Washington, D.C. on Saturday, August 8, 2020. (Photo by Amanda Andrade-Rhoades/For The Washington Post via Getty Images)

"Fortunately for market-weary buyers growing increasingly anxious about the state of the housing market, as measured by Google searches for the phrase 'housing bubble' and related concerns, the seasonal trends are lining up to bring some relief," Hale said.

Weekly data from Realtor.com showed that new sellers this week were up 36% compared with a year ago. 

"This won’t solve the inventory crunch overnight, but it’s a big step in the right direction," Hale said, "and one we’re likely to see more of in the weeks ahead as we approach the best time of the year to sell a home."

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Janna is an editor for Yahoo Money and Cashay. Follow her on Twitter @JannaHerron.

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