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Mortgage rates hover near record lows to close out 2020 — now here’s the bad news

Mortgage rates have closed out 2020 around the lowest levels
on record. But those looking to lock-in this cheap financing shouldn’t wait on
the sidelines for too long.

The 30-year fixed-rate mortgage averaged 2.67% for the week ending Dec. 31, up a basis point from the new record low of 2.66% set the week prior, Freddie Mac FMCC, -1.30% reported Thursday.

Meanwhile, the 15-year fixed-rate mortgage dropped two basis
points to an average of 2.17%, representing a record low for that mortgage
product. The 5-year Treasury-indexed hybrid adjustable-rate mortgage fell by eight
basis points to 2.71%.

“With 2020 wrapping up, we can look back on a year where low
mortgage rates served as a potent fuel, driving activity and offering buyers
access to a home,” said George Ratiu, senior economist at Realtor.com.

On more than a dozen separate occasions this year, mortgage
rates decreased to record lows, per Freddie Mac’s weekly report. Indeed, rates
fell to levels once thought to be infeasible, if not impossible.

But a number of factors could push rates higher in the New Year. “Compared to the passage of the newly-passed COVID-19 relief bill, which markets had been expecting for months, the results of two Senate runoff elections in Georgia and the possibility of more fiscal relief are both far less certain in the eyes of investors and thus could prompt sharp movements in bond yields depending on their outcomes,” said Matthew Speakman, an economist with Zillow ZG, -0.33%.

Mortgage rates
roughly track the direction of long-term bond yields, especially the 10-year
Treasury note. “Until more is known on either of those fronts, meaningful
movements in mortgage rates appear unlikely,” Speakman added.

Longer-term, the
trajectory of the pandemic and the economy will have a major influence on
rates. With vaccines now rolling out, the global community seems poised to
begin emerging from the pandemic. If that benefits the U.S. economy as
expected, rates will certainly rise.

Accordingly, most
economist have projected a rate increase for 2021, though they differ on how
much rates will go up by.

Economists project rising mortgage rates in 2021

Whatever the amount,
rising mortgage rates threaten to make buying a home unaffordable at a time
when home prices are increasing by record amounts. “We expect rising mortgage
rates to challenge first-time buyers still struggling to find an affordable
home as inventory hits new lows and prices continue to climb,” Ratiu said.

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