Will mortgage rates move up or down in August?

If you’re thinking about getting a mortgage, you might be concerned that mortgage interest rates may creep up in August after falling steeply since the start of the pandemic. The good news is experts expect rates to stay at or near historic lows in August 2020.

"Mortgage rates are likely to remain at record low levels through August and for the foreseeable future, given the weak economic backdrop. The uncertain nature of the coronavirus and the likelihood of a long economic recovery will keep a lid on mortgage rates," says Greg McBride, CFA, Bankrate chief financial analyst.

Mortgage rates have continued their downward trend since the COVID-19 crisis started months ago. The average yield on the benchmark 30-year fixed-rate mortgage fell in the last week of July to a new record low of 3.30 percent, based on Bankrate's weekly poll of major lenders. A year ago, the 30-year was 3.97 percent. The 30-year fixed-rate average for the week is 0.67 percentage points below the 52-week high of 3.97 percent.

Where mortgage rates are headed in August

Rates aren't likely to rise or fall much in the near future, the pros agree.

"While some slight daily variation can be expected, there should be little change in the 30-year fixed mortgage rate in August. The continued demand for 10-year Treasury securities - the anchor for long-term mortgage rates - will serve to keep rates hovering around plus or minus 3 percent," says Ken H. Johnson, real estate economist with Florida Atlantic University in Boca Raton, Florida.

Logan Mohtashami, an Orange County, California-located lead analyst at HousingWire, echoes those thoughts.

"The 10-year yield refuses to break under 0.62 percent with any kind of velocity," says Mohtashami. "But we have two factors that might drive rates just a tad downward: if the government disaster relief isn't big enough, and if some of the recent economic gains are lost. Also, if this second surge of coronavirus cases gets worse, it will cause the 10-year yield to break lower."

Indeed, the longer our nation goes without an effective COVID-19 vaccine, the more uncertain our economy becomes and the more likely it is that rates will stay flat or fall even more.

"How we manage the pandemic will be a major factor in where mortgage rates go in the long run," says Johnson. "With a combination of effective vaccines and treatments, the impact of the virus on the economy will be less and, all else being equal, rates should remain steady."

The forthcoming election could alter matters sooner than expected, too.

"I expect the 30-year rate to dip below 3 percent in August, as the election cycle will have enough traders nervous that you'll see additional money flowing to bond holdings, driving rates downward," says Derek Egeberg, producing branch manager for Academy Mortgage Corporation in Yuma, Arizona. "I anticipate rates to remain lower through the end of the fourth quarter and until earnings for this year's holiday season are reported and the election cycle is over."

Mortgage rates beyond August

The Mortgage Bankers Association predicts that the 30-year fixed-rate should remain relatively unchanged over the next five months, averaging 3.3 percent for 2020 and heading up to 3.5 percent in 2021. Freddie Mac expects rates to remain low, dropping to a yearly average of 3.4 percent this year and 3.2 percent in 2021. Fannie Mae, meanwhile, foresees rates dropping to 3.0 percent in the third and fourth quarters of 2020 and dipping to as low as 2.8 percent a year from now.

Forecasting through the rest of the year and into 2021, McBride believes the path of mortgage rates will be dictated by how the economy fares, ongoing stimulus measures from the Federal Reserve, and the inflation outlook.

Act soon on a new mortgage or a refinance, expert advises

Egeberg is convinced right now is the most ideal time to purchase or refinance a home.

"Similar to asking our grandparents why they didn't buy more homes 50 years ago when prices were cheaper, our children will ask us about the 'Great Interest Rate Decline' of 2020 and if we were able to capitalize on these historic low rates," he says. "This is the single biggest buying opportunity of our lifetime due to how affordable the debt payments are the current interest rate environment."

Before rushing into a decision, however, do your homework first; crunch the numbers and ensure you can afford the monthly payments.

"Rather than timing a home purchase based on low mortgage rates, it's better to make sure your finances are in solid shape before taking the plunge," McBride says. "Work on improving your credit score, paying down debt and boosting savings. These steps will make you better prepared for successful homeownership, regardless of whether your rate is 2.5 percent or 3.5 percent."

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