Low mortgage rates help shatter home sales records

While the overall economy is taking a beating during the COVID-19 pandemic, the U.S. housing market has dodged every punch thrown its way so far.

A total of 1,011,000 newly constructed homes sold in August, while sales of existing homes topped 6 million.

Both figures break sales records set all the way back in 2006.

The hectic pace is likely to continue for the rest of the year, says Lawrence Yun, chief economist of the National Association of Realtors, thanks to continued job recovery and mortgage rates hovering around 3%.

Here's how the market has shifted in recent weeks and months and how you can take advantage.

A record-breaking jump for home sales

Throughout the U.S., sales of new housing surged 43.2% compared to August of 2019, while sales of existing homes rose 10.5%.

One of the biggest factors driving the buying frenzy is today’s incredibly low mortgage rates. Interest rates plummeted during the early weeks of the coronavirus pandemic and have stayed low into the fall, now averaging 2.90% for a 30-year fixed-rate loan.

Last year, rates on 30-year fixed-rate mortgages averaged 3.9%, a full percentage point higher than what you'll find out there today.

High existing home prices, low supplies are challenges

All that activity is driving up prices for existing homes, especially in large metropolitan areas. The median sale price nationwide increased last month to $310,600, up 11.4% from a year earlier at $278,800.

"Housing demand is robust but supply is not, and this imbalance will inevitably harm affordability and hinder ownership opportunities," Yun says in a news release. "To assure broad gains in homeownership, more new homes need to be constructed."

Yun adds that the rising cost of lumber — aggravated by raging wildfires — has “led to an increase in the cost of multifamily housing and an even higher increase for single-family homes.”

His group expects that demand will soar even after a coronavirus vaccine is available, assuming work-from-home becomes the new normal. That cultural shift will likely see more city-dwellers take advantage of lower prices in suburban and rural areas.

Mortgage rates rise, but still at record lows

Average mortgage rates are hovering close to record lows, even amid reports that many lenders have been raising their rates to pass along the cost of a new 0.5% refinance fee.

Experts say rate changes could remain modest for the foreseeable future, barring significant developments in the fight against COVID-19.

The average for a 15-year fixed-rate mortgage rose this week — hitting 2.40%, from 2.35% last week. Those mortgages are often used for refinance loans, and the rates are down sharply from last year, when the average was 3.16%.

Rates on 5/1 adjustable-rate mortgages, or ARMS, are averaging 2.90%, a drop from last week’s average of 2.96%.

There's still time to take advantage of low rates

Though the new fee on most U.S. refinance loans doesn’t technically go into effect until Dec. 1, experts already have observed lenders passing the cost on to consumers by raising mortgage rates across the board.

We saw a preview of this in mid-August. Rates soared when the fee was first announced and was given a Sept. 1 start date, but a federal regulatory agency delayed it by three months — and rates dropped back down for a while.

Rates overall have basically been flat for the last two weeks, largely thanks to the Federal Reserve, says Matthew Speakman, an economist with Zillow.

“With the Fed likely to keep interest rates at zero and a steady pace of mortgage bond purchases, upward pressure on mortgage rates will be limited in the near future,” he says.

That means there’s still time to lock in the best rates for homeowners who’ve been waiting to refinance their mortgages and save. An estimated 19.3 million mortgage holders could lower their interest rates to reduce their monthly payments by an average $299 a month, the mortgage data firm Black Knight recently reported.

Shopping around is essential for getting the best rates; borrowers who get five rate quotes save an average of $3,000 more than those who get just one quote, a Freddie Mac study found.

Comparison shopping also works very well when you're trying to save on your home insurance.