Low rates are a double whammy for home prices

Red arrow up and miniature wooden houses. The concept of rising home prices.
Andrii Yalanskyi / Shutterstock

Mortgage rates are close to three-year lows and last week dropped to the lowest level for late January in the history of the weekly survey from mortgage giant Freddie Mac.

Redfin says the bargain-basement rates have captured the attention of homebuyers, but they're also encouraging homeowners to refinance their mortgages and stay in their homes, rather than sell.

That low-rate double whammy has resulted in strong demand for houses combined with a shortage of homes for sale — a recipe for the fastest increases in home prices in years, Redfin says.

"I’m regularly seeing homes with well over a dozen offers that sell for hundreds of thousands above list price, even in the middle of our recent snowy week," says Shoshana Godwin, a Redfin agent in Seattle.

During mid-January, the pace of homebuyers applying for mortgages hit an 11-year high. In the most recent week, demand for mortgages to buy homes rose 2%, and applications for refinance loans jumped 8%, the Mortgage Bankers Association says.

Some 9.4 million U.S. homeowners could save an average $272 per month by refinancing, according to the data firm Black Knight.

You can compare refi offers from multiple lenders here.

Mortgage rates trigger a buying binge

Real estate agent showing modern house to couple
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Redfin reports that homebuying during January was as busy as agents normally see during the spring, and low interest rates were a reason.

How low are we talking about? Rates on 30-year fixed-rate mortgages were averaging 3.51% in last week's Freddie Mac survey — just a couple of notches above last fall's valley of 3.49%, which was the lowest since November 2016.

Additionally, last week's average was the lowest ever recorded during the final week of January, according to Freddie Mac data going back to 1971.

At 3.51%, the benchmark mortgage rate is nearly a full percentage point below where it was a year ago, when the average was 4.46%.

Rates have been dropping as financial markets have been rocked by the fast-spreading coronavirus.

The average 15-year mortgage — which is a popular refinancing option — is down to an even 3%, and 5/1 adjustable-rate mortgages are being offered at an average initial rate of 3.24%. The rates on those "ARMs" are level for five years and then can change every year.

Use the calculator below to see how affordable your monthly mortgage payment would be with one of today's low rates.

The advice from agents: Move fast

Close up photo of handshake. Broker giving keys of new  house
Roman Samborskyi / Shutterstock

Thanks to the cheap rates, the housing market is moving toward what Redfin calls "the mother of all inventory crunches" this year, with demand for homes at a 10-year high but the number of houses on the market at a 20-year low.

The National Association of Realtors says the U.S. has just a three months' supply of homes available for sale. Builders are scrambling to keep up, and last month reported the largest number of groundbreakings in 13 years.

But until supplies can satisfy the hunger for homes, Redfin is warning homebuyers to prepare for bidding wars for houses and skyrocketing prices.

Godwin, the agent in Seattle is telling the buyers she's working with to be ready to move swiftly if they see a home that would work for them, and at a price they could swallow.

"In a typical year, I’d say to wait it out and expect more homes for sale in the next few months," she says, "but now I’m warning clients prices may only continue to rise and the inventory may not appear."

About the Author

Doug Whiteman

Doug Whiteman


Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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