Mortgage rates fell to record lows 16 different times in 2020, hitting a new record low as recently as the week of December 24. And now, with the calendar flipped to 2021, it’s much of the same: another new record low.
The prevailing market interest rate for a 30-year, fixed-rate mortgage, which is tracked by Freddie Mac, fell to a new record low of 2.65% in the week ending January 7, 2021. That’s one basis point below the previous record low of 2.66%.
This marks the 17th time that interest rates have set new record lows in the last year, per Freddie Mac’s records, which stretch back to 1971.
For reference, at the beginning of 2020, the prevailing market interest rate for a 30-year mortgage was 3.64%.
Despite interest rates being lower than many thought would ever be possible, Freddie Mac Chief Economist Sam Khater said that housing affordability is declining (meaning it’s becoming less affordable to buy a house) due to how quickly home prices are rising.
Beyond that, Khater thinks the affordability decline will likely continue this year as interest rates are projected to rise above the current record low.
“A new year, a new record low mortgage rate. Despite a full percentage point decline in rates over the past year, housing affordability has decreased because these low rates have been offset by rising home prices,” Khater said.
“However, the forces behind the drop in rates have been shifting over the last few months and rates are poised to rise modestly this year,” Khater added. “The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season.”