Economists' Outlook

Housing stats and analysis from NAR's research experts.

Instant Reaction: Mortgage Rates, February 18, 2021

As expected, mortgage rates rose this week following the trend of the 10-year Treasury yield. Specifically, the 30-year fixed rate picked up to 2.81% from 2.73% the previous week. The 10-year Treasury yield – a key benchmark for mortgage rates - drifted higher as there are signs that the economic recovery is gaining momentum. U.S. retail sales jumped by 5.3% in January, well above expectations, as millions of Americans received their stimulus check. In addition, the producer price index, which measures the selling prices received by domestic producers, rose significantly in January, indicating that inflation may rise in the following months.

However, this mortgage rate increase shouldn’t raise any concerns for would-be home buyers. Remember that mortgage rates are just coming off historical lows and they are very low compared to the historical average. For instance, mortgage rates varied from 6-11% in the 1990s and 5-9% in the early 2000s. NAR is forecasting mortgage rates to average 3.0% in the first half of the year.

As more and more consumers take advantage of the ultra-low mortgage rates, newly originated mortgages – including refinances - reached a record high level, surpassing volumes seen during the refinance boom of 2003. Specifically, the volume of mortgage originations rose by nearly 60% to $1.2 trillion at the end of 2020 from $752 billion a year earlier, according to the Federal Reserve report. However, comparing with 2003, the composition of these mortgage originations in 2020 is significantly different; 71% of originations at the end of 2020 went to borrowers with credit scores over 760, while only 31% of those new mortgages went to the most creditworthy borrowers in 2003.

Nevertheless, data shows that not all families have the same opportunities for homeownership, particularly as Black applicants are rejected for mortgage loans at a rate 2.5 times greater than white applicants – 10% vs. 4%, respectively. According to a recent study from NAR, the primary reason that Black applications are rejected is the debt to income ratio. In fact, Black households are more than twice as likely than white households to have student loan debt – 43% vs. 21% –with a median student loan debt for Black households of $40,000 compared to $30,000 for white households. As a result, the homeownership rate for Black Americans – 42% – is nearly 30% less than the rate for white Americans – 69.8%.

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