Instant Reaction: Mortgage Rates, September 17, 2020

Mortgage rates have stabilized near record lows but rates could fall even further this year. The 30-year fixed-rate mortgage inched up to an average of 2.87% this week from 2.86% the prior week. With the Fed to hold interest rates steady at near zero percent through 2023 under its new flexible inflation target strategy, mortgage rates are expected to reach new record lows.

These ultra-low rates significantly decrease the borrowing cost for homebuyers. Since the beginning of the year, mortgage rates dropped more than 80 basis points. As a result, the qualifying income to buy a starter home drops by 10% to nearly $43,000. Meanwhile, the monthly mortgage payment drops by $100. Because of the lower borrowing cost, homebuying activity has already ramped up to higher than pre-pandemic levels. Many homebuyers can jump into the real estate market since 1 of 3 renters can afford to buy the typical home today. All in all, recovery in the real estate market has been much faster than expected.