Mortgage Rates Fall to Another Record Low

Summary

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WSJ Your Money Briefing: Mortgage Rates Fall to Another Record Low

Date: July 17, 2020
Host: J.R. Whalen (Wall Street Journal)
Guest: Orla McCaffrey (WSJ Reporter)

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Episode Overview

This episode centers on the historic drop in U.S. mortgage rates, falling below 3% for the first time since records began—an unprecedented shift in the financial landscape. Host J.R. Whalen speaks with WSJ housing reporter Orla McCaffrey to unpack what this means for homebuyers, the housing market, and the broader economy amid the ongoing disruptions caused by the COVID-19 pandemic.

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Key Discussion Points & Insights

Historic Drop in Mortgage Rates

• Trend Overview

  • Mortgage rates recently dropped to 2.98% for a 30-year fixed loan, setting a new record low for the third consecutive week (00:36–00:56).
  • "The average rate on a 30 year fixed mortgage fell to a record low 2.98% this week. That's the third straight week rates have hit a new low." —J.R. Whalen (00:44)

• Historical Context

  • Mortgage rates peaked at an astonishing 18.6% in October 1981 due to Fed combatting inflation; they’ve been declining ever since with a steeper drop-off since late 2018 (01:44–02:06).
  • "Historically, rates reached their highest rate, 18.6%...in October 1981 after the Fed raised short term rates in order to combat inflation." —Orla McCaffrey (01:45)

Why Rates Are So Low—and Could Go Lower

• Current Factors

  • There’s an unusually wide gap between mortgage rates and the 10-year Treasury yield, which could mean further declines in coming months (02:09–02:30).
  • Economists expect mortgage rates to stay low or drop further for at least the next 3–6 months.

• Quote:

  • "The gap between mortgage rates and...the 10 year treasury yield is unusually wide...as that space narrows, rates will fall even further." —Orla McCaffrey (02:13)

Housing Market Dynamics in the Pandemic

• Demand & Inventory

  • Despite low rates and high demand, actual home sales dropped substantially in the spring of 2020 as people hesitated to list or buy amid the pandemic, resulting in record-low inventory (02:33–03:05).
  • "On the surface, the housing industry looks resilient as rates are low and there's still a lot of demand...but sales really have fallen this spring." —Orla McCaffrey (02:33)

• Recent Recovery

  • By June 2020, mortgage applications and home sales began to rebound, reflecting pent-up demand, though this is expected to taper after the summer (03:10–03:35).
  • "Existing home sales, which is a good measure of housing market activity, were down double digits year over year...But that has since picked up...as people get more comfortable going out and touring homes." —Orla McCaffrey (03:12)

Barriers to Homeownership

• Affordability Issues
  • Even with ultra-low rates, rising home prices and the need for a sizeable down payment create significant barriers, especially for first-time buyers (03:35–03:57).
  • "They can only take advantage of these low mortgage rates if they can afford the homes in the first place." —Orla McCaffrey (03:41)

Migration & Market Shifts

• Out-of-City Movement

  • Suburban and exurban communities, especially those near major cities like New York and Boston, are seeing increased interest from city dwellers seeking to move out or purchase second homes (03:57–04:22).
  • "We have seen lots of people moving out of New York City...purchasing a second home is really popular right now." —Orla McCaffrey (04:13)

• Adapting to Pandemic Restrictions

  • Regulations and social distancing have made virtual home tours and electronic closings (via Zoom, FaceTime, DocuSign) the new norm (04:22–04:47).
  • "Zoom and FaceTime tours are now the new norm. Loan documents are being signed on DocuSign..." —Orla McCaffrey (04:29)

Broader Economic Benefits

• Savings & Stimulus

  • Homeowners can save hundreds to thousands of dollars on monthly payments over 30-year loans (01:00, 04:51).
  • Quote: "You can save hundreds, thousands of dollars on your monthly payment over the course of your 30 year loan." —Orla McCaffrey (01:00, 04:51)
  • The housing sector fuels 15-18% of the economy due to its vast ripple effects on construction, appliances, and furnishings (04:51–05:22).

• Potential for Recovery

  • As the economy recovers, a robust housing market could play a major role in the rebound (04:51–05:22).

Notable Economic Markers

• Record-setting Year
  • Multiple economic benchmarks—stock market swings, a sub-1% Treasury yield, and now sub-3% mortgage rates—mark 2020 as a historic year (05:22–05:41).
  • "The 3% mortgage rate is definitely up there in terms of historic events of 2020." —Orla McCaffrey (05:36)

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Memorable Quotes & Moments

• On Historic Rates:
  "Historically, rates reached their highest rate, 18.6% if you can believe it, in October 1981..." —Orla McCaffrey (01:45)

• On Affordability Challenges:
  "They can only take advantage of these low mortgage rates if they can afford the homes in the first place." —Orla McCaffrey (03:41)

• On the Changing Process:
  "Zoom and FaceTime tours are now the new norm. Loan documents are being signed on DocuSign..." —Orla McCaffrey (04:29)

• On Economic Benefit:
  "The housing market makes up between 15 and 18% of the economy..." —Orla McCaffrey (04:54)

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Timestamps for Key Segments

• Mortgage rates hit record low & overview: 00:36–01:08
• Historical context of rates: 01:44–02:06
• Economists’ outlook for future rates: 02:09–02:30
• Pandemic’s impact on sales & inventory: 02:33–03:35
• Affordability and barriers: 03:35–03:57
• Suburban migration & market adaptation: 03:57–04:47
• Savings for buyers and economic impact: 04:51–05:22
• Historical milestones in the economy: 05:22–05:41

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Tone & Language

The conversation is practical, informative, and accessible, offering not only facts, but contextual guidance for listeners trying to understand how record-low mortgage rates could impact their own financial decisions during a turbulent time.

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Transcript

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Consumer Advocate]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.

[J.R. Whalen]

Here's your money briefing for Friday, July 17th. I'm J.R. whalen for the Wall Street Journal. The pandemic has upended the housing market. Sales are down, prices are up, and the average rate on a 30 year fixed mortgage fell to a record low 2.98% this week. That's the third straight week rates have hit a new low for people who

[Orla McCaffrey]

can take advantage of these low rates. You can save hundreds, thousands of dollars on your monthly payment over the course of your 30 year loan. So it really is a good time to lock something in or even wait for a couple of months down the road.

[J.R. Whalen]

So how long until rates start creeping back up again? And why aren't potential home buyers capitalizing on low rates while they can? We'll check in with our reporter Orla McCaffrey after the break. Mortgage rates have been trending lower recently, but this week rates fell below 3% for the first time since record keeping began a half century ago. Could rates go even lower? Let's bring in reporter Orla McCaffrey for some answers. So Orla, how long have mortgage rates been trending lower?

[Orla McCaffrey]

So historically rates reached their highest rate, 18.6% if you can believe it, in October 1981 after the the Fed raised short term rates in order to combat inflation. So since then they've been trending down more recently. The last decline we've seen has been from about the fall of 2018 and then an acceleration in that decline starting this year.

[J.R. Whalen]

Do economists expect rates to remain low for an extended period of time?

[Orla McCaffrey]

Yes, and they even expect them to go lower here in the next three to six months. And that's because the gap between mortgage rates and this other indicator that influences them in a major way, the 10 year treasury yield is unusually wide and because there's that much space, as that space narrows, rates will fall even further.

[J.R. Whalen]

Now what do these record low rates tell us about the state of the housing industry?

[Orla McCaffrey]

On the surface, the housing industry looks resilient as rates are low and there's still a lot of demand for new homes But a little deeper down, sales really have fallen this spring as people don't want to move out of their homes during the pandemic, which creates a really terribly short inventory of homes in what was already a really constricted market. So while low mortgage rates are good for potential home buyers, there are still a ton of obstacles that people have to get over before they can take advantage of those rates.

[J.R. Whalen]

So even though people have wanted to stay in their homes, what kind of activity are we seeing in the market?

[Orla McCaffrey]

In March and April, when, you know, the pandemic hit its first height, people were really staying home. Existing home sales, which is a good measure of housing market activity, were down double digits year over year. But that has since picked up. There are signs that's picking up in June with mortgage applications and some of that pent up demand coming back as people get more comfortable going out and touring homes. But that is expected to wane after the summer.

[J.R. Whalen]

Well, this is great news for home buyers, but are people actually able to take advantage of these rates and buy homes?

[Orla McCaffrey]

The rising prices does put home buyers in a tough spot. They can only take advantage of these low mortgage rates if they can afford the homes in the first place. The rates make the homes cheaper over the long term with the lower interest rates, but you still need a good chunk of the down payment upfront, and that's larger when prices are rising.

[J.R. Whalen]

You know, I'm thinking about Connecticut, which is hoping to capitalize on people's interest in moving away from cities and places like New York and Boston. There's a lot riding on this.

[Orla McCaffrey]

Communities like that, you know, within commuting distance from major cities are definitely in line to benefit if they can attract enough homeowners. We, we have seen lots of people moving out of New York City, whether leaving their house, their apartment, or just even purchasing a second home is really popular right now.

[J.R. Whalen]

And then regulations in places like New York put a lot of challenges on sellers and how they could show a home or apartment.

[Orla McCaffrey]

Yeah, everyone in the housing business really had to adapt. Real estate agents, mortgage lenders, home buyers and sellers. Zoom and FaceTime tours are now the new norm. Loan documents are being signed on DocuSign instead of in person like you normally would. It's really shifted the process a lot now.

[J.R. Whalen]

What are the economic benefits here of the lower rates beyond housing for people

[Orla McCaffrey]

who can take advantage of these low rates? You can save hundreds, thousands of dollars on your monthly payment over the course of your 30 year loan. So it really is a good time to lock something in or even wait for a couple of months down the road. The housing market makes up between 15 and 18% of the economy because when people buy homes, they also, you know, pay people to build the homes and spend thousands of dollars on appliances and furnishings for the home. So that all really adds up. And when the economy does start to recover, the housing market could definitely play a big role.

[J.R. Whalen]

You know, Orla, the people that track record lows and record highs in the economy, they've been pretty busy this year.

[Orla McCaffrey]

Yeah, absolutely. I mean, with the wild swings in the stock market, the 10 year treasury yield dropping below 1%, the 3% mortgage rate is definitely up there in terms of historic events of 2020.

[J.R. Whalen]

All right. That's Wall Street Journal reporter Orla McCaffrey. Orla, thanks for coming on the show.

[Orla McCaffrey]

Anytime.

[J.R. Whalen]

And that's your Money briefing. I'm J.R. whalen for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Consumer Advocate]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.