U.S. 30-Year Mortgage Rates Tumble to a Record Low of 3.29%

(Bloomberg) -- Rates for 30-year U.S. mortgages tumbled to the lowest on record as fears of a blow to the economy from the coronavirus sent investors rushing to the safety of Treasuries.

The average rate was 3.29%, down from 3.45% last week and the lowest in 49 years of data-keeping, Freddie Mac said in a statement Thursday. The previous low, in November 2012, was 3.31%.

Plunging borrowing costs have set the stage for a spring housing boom and are giving homeowners a fresh opportunity to refinance into cheaper loans. Lenders are staffing up to meet the demand. Quicken Loans Inc., the nation's largest mortgage lender, said Monday was the busiest day for mortgage applications in the company's 35-year history.

Read More: Mortgage Lenders Hire Like Mad to Meet Demand as Rates Slide

The spread of the virus has roiled financial markets, hammering stocks and pushing yields for the Treasuries that guide mortgage costs to the lowest on record. The Federal Reserve on Tuesday slashed its benchmark lending rate by half a percentage point in its first emergency move since 2008.

Mortgage rates will probably fall more and then hit a floor, said Matthew Pointon, U.S. property economist at Capital Economics Ltd.

“I don't think it's going to go below 3%,” he said. “Banks already have a surge in demand -- they don't want to attract new customers.”

In fact, the “high 2s” is probably as low as it can drop, according to Mark Fleming, chief economist at First American Financial Corp. That's because all the participants in the transaction need to be paid, from the servicer to the originator. Those fixed costs account for 1.5% to 2%, he said.

Buying power for purchasers increased by $25,000 to $30,000 with the rate declines in just the past couple of weeks, and 11 million homeowners could now benefit from refinancing because their current loans have rates around 4.1% to 4.5%, he said.

Homebuyers, however, will have to contend with increasingly scarce inventories.

“While you might be able to afford more, it's going to be hard to buy what's not for sale,” Fleming said. “We are going to have a lot of bidding wars and upward pressure on prices as a result.”

At the current average rate, the monthly payment on a $300,000, 30-year loan would be $1,312. That's down from $1,504 a year ago, when the rate was 4.41%.

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editors responsible for this story: Craig Giammona at cgiammona@bloomberg.net, Christine Maurus

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