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Mortgage rates started the new year with a new record low. The 30-year fixed mortgage rate dropped this week to 2.65% from 2.67% the previous week, although the 10-year Treasury yield is moving upwards. In fact, the 10-year Treasury yield hit 1.04% for the first time since March when the pandemic began. Yields, which rise when bond prices fall, are climbing as investors’ sentiment has been buoyed by the possibility of additional stimulus and higher government spending from the new administration that could fuel economic growth. Although yields increased sharply this week, remember that they are still historically low around 1%. In fact, yields ranged from 5% to 9% in the 1990s and 3% to 6% in the early 2000s.
Given that mortgage rates usually track with the 10-year Treasury note, we should closely follow the trend of the 10-year yield. Historically, the difference between the 30-year fixed-rate and the 10-year Treasury yield is around 1.8%, implying that mortgage rates will also pick up this year. However, expect mortgage rates to rise modestly hovering near record lows this year. NAR is forecasting the 10-year yield to average 1.1% and mortgage rates 3.1% in 2021, respectively.
Meanwhile, with additional financial aid on the way, favorable demographic trends, and teleworking, strong housing momentum will continue this year. Forty-four percent of Millennials - the largest cohort of homebuyers - have substituted some or all typical in-person work for telework compared to 36% for all age groups. In fact, the share of Millennials working remotely is even higher in many states; for instance, in the District of Columbia (76%), Massachusetts (60%), and Colorado (56%). While no one can say how long the pandemic will last, teleworking will continue long after the pandemic, affecting homebuyers’ preferences and boosting the real estate market.
