After hitting a record low earlier this month, the average 30-year fixed rate mortgage (FRM) rate displayed more volatile movement, decreasing from the previous week to 3.50% in the week ending March 27, 2020. The 15-year FRM rate also decreased, now at 2.92%. FRM rates recently descended to historic lows due to global financial panic stemming from COVID-19. The Federal Reserve (the Fed) recently dropped their benchmark interest rate to zero as we head into the coming recession, to officially arrive in the third quarter (Q3) of 2020. As a result, expect interest rates to remain relatively low for the next several months.
FRM rates are tied to the bond market, tending to move in tandem with the 10-year Treasury Note (T-Note) rate. The 10-year T-Note plunged to its lowest rate on record, hitting a low of 0.57% on March 9, at 0.74% as of March 27, 2020. Bond market investors are reacting to the gutted economy and the expectation of a continued halt to many business activities. This has led them to accept significantly lower yields in return for the safety of treasuries, which in turn has pulled FRM rates down in recent weeks. FRM rates will remain low over the next two-to-three years.
The spread between the 10-year T-Note and 30-year FRM rate is 2.76%, well above the historical difference of 1.5%. The higher margins seen through much of 2018-2019 and rising in 2020 signify that mortgage lenders, looking ahead toward the approaching recession, are increasingly padding their risk premiums. This is especially true as the 10-year T-Note remains near historic lows. However, FRM rates will not go as dramatically low as T-Notes have in recent weeks – unless the Federal Reserve (the Fed) decides to go negative, a real possibility this year as the Fed recently dropped their Federal Funds rate to zero.
The average monthly rate on ARMs was 3.16% in March 2020, far above its low point of 2.49% experienced in May 2013. The average ARM rate is higher than the average 15-year FRM rate and only slightly lower than the average 30-year FRM rate, making these riskier mortgage products less appealing. As interest rates fell back in 2019, the spread between the ARM and FRM rates diminished. Therefore, ARM use will remain low over the next couple of years, as the Fed will work to keep interest rates on FRMs low as the economy slows and a recession arrives in the coming months. At the end of March, yields on short-term treasury bills are negative, indicating a strong expectation that the Fed will also go negative this year, which will translate to even lower mortgage interest rates.
The economic slowdown that began in 2019 is accelerating downward in 2020. Shelter-in-place orders are causing economic activity to grind to a halt, resulting in lost jobs and less willingness to take on large purchases. Many homebuyers and sellers are hitting pause on their plans and today’s low FRM and ARM rates won’t be enough to stem the outgoing tide. Expect home sales volume and prices to decrease through the end of 2020, not to recover until the recession is over and the recovery underway in 2021-2023.
Updated March 27, 2020. Original copy released March 2012.
Click the link to go directly to a chart, or browse the charts by scrolling below.
1. 30-year fixed rate mortgage (FRM) rate, weekly — Chart update 03/27/20
2. 30-year FRM rate, monthly — Chart update 03/27/20
3. 15-year FRM rate — Chart update 03/27/20
4. 5/1 adjustable rate mortgage (ARM) rate — Chart update 03/27/20
5. 10-year Treasury note rate — Chart update 03/27/20
6. Combined FRM and 10-year Treasury note rates — Chart update 02/28/20
7. 91-day Treasury bill rate — Chart update 03/13/20
8. 3-month Treasury bill — Chart update 03/06/20
9. 6-month Treasury bill — Chart update 03/06/20
10. Treasury Securities average yield — Chart update 02/21/20
11. 12-month Treasury average — Chart update 03/06/20
12. Cost of Funds Index — Chart update 03/13/20
13. London Inter-Bank Offered rate (LIBOR) — Chart update 03/13/20
14. Applicable federal rates — Chart update 03/20/20
15. Private lender section 32 Reg-Z loans — Chart update 08/10/18
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| Chart update 03/27/20 |
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Current |
Month ago
02/28/20
3.45%
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Year ago
03/29/19
4.06%
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The average 30-year FRM rate in California is provided by Bankrate.com.
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| Chart update 03/27/20 | ||
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Mar 2020
Average
3.45%
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Feb 2020
Average
3.47%
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Mar 2019
Average
4.28%
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| Chart update 03/27/20 | ||
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Current
03/27/20
2.92%
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Month ago
02/28/20
2.95%
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Year ago
03/29/19
3.57%
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The average 15-year FRM rate in California is provided by Bankrate.com.
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| Chart update 03/27/20 | ||
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Mar 2020
3.16%
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Feb 2020
3.28%
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Mar 2019
3.83%
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The 5/1 average adjustable rate mortgage (ARM) rate shows the average rate for the first five years after origination. After the initial five-year period, the ARM rate is adjusted annually based on an index figure, such as a certain Treasury Bill rate (which reflects Federal Reserve rate movements) or the London Inter-Bank Offered Rate (LIBOR). Beginning January 2016, the average ARM rate in California is provided by Bankrate.com. Prior to January 2016, the average ARM rate is provided by Freddie Mac’s survey of the Western Region of the U.S.
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| Chart update 03/27/20 |
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Current
03/27/20
0.74%
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Month ago
02/28/20
1.17%
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Year ago
03/29/19
2.43%
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This rate is a leading indicator of the direction of future Freddie Mac rates. The 10-year rate historically runs closer to 4% during a stable money market. The rate is influenced by worldwide demand for the dollar and anticipated future domestic inflation.
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| Chart update 02/28/20 |
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Avg 15-Year
Feb 2020
2.97%
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Avg 30-Year
Feb 2020
3.47%
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Avg 10-Year T-Note
Feb 2020
1.51%
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The average 15- and 30-year conventional commitment rates are the rates at which a lender commits to lend mortgage money in the United States-West/California for the duration of the life of each respective mortgage as reported by Freddie Mac. The green line reflects the 10-Year Treasury Note Average, a leading indicator of the direction of future Freddie Mac rates. It is comprised of the level of worldwide demand for the dollar and anticipated future domestic inflation.
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| Chart update 03/13/20 |
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Current
03/12/20
0.40%
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Month Ago
02/13/19
1.58%
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Year Ago
03/14/19
2.46%
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This rate determines the minimum interest rate the seller must use in a delayed §1031 transaction and report when not receiving interest on §1031 monies held by a facilitator/accommodator. This rate also sets the amount of the ordinary income the facilitator/accommodator must report.
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| Chart update 03/06/20 |
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Feb 2020
1.52%
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Jan 2020
1.52%
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Feb 2019
2.39%
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The 3-Month Treasury Bill is the rate managed by the Federal Reserve through the Fed Funds Rate as the base price of borrowing money in the short-term. It is used in determining the yield spread, which predicts the likelihood of a recession one year forward. The posted rate is the monthly average for the listed month. Rates are released with a 1-2 month reporting delay.
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| Chart update 03/06/20 |
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Feb 2020
1.47%
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Jan 2020
1.52%
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Feb 2019
2.44%
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The six-month T-Bill rate is one of several indices used by lenders to periodically adjust the adjustable rate mortgage (ARM) rate. The adjusted rate equals the indexed rate (at the time of adjustment or an average of several prior rates) plus the lender’s profit margin. The posted rate is the monthly average for the listed month. Rates are released with a 1-2 month reporting delay. |
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| Chart update 02/21/20 | ||
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Jan 2019
1.53%
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Dec 2019
1.55%
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Jan 2018
2.58%
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This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate.The ARM interest rate equals T-Bill yield, plus the lender’s profit margin. The index is an average of T-Bill yields with maturities adjusted to one year.
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| Chart update 03/06/20 |
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Feb 2020
1.87%
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Jan 2020
2.00%
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Feb 2019
2.45%
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This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. This figure is an average of the one-year T-Bill rates for the past 12 months. The ARM interest rate equals the 12-Month Treasury Average yield plus the lender’s profit margin. There is a one-two month lag in data reporting for the 12-Month Treasury Average.
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| Chart update 03/13/20 | ||
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Jan 2019
0.98%
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Dec 2019
1.04%
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Jan 2019
1.13%
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This index is one of several indexes used by lenders to periodically adjust the interest rate on an ARM note. The ARM interest rate equals Cost of Funds Index, plus the lender’s profit margin. Current index reflects the cost of funds two months’ prior in the United States-West.
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| Chart update 03/13/20 | ||
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1 Month
0.81%
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6 Month
0.77%
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1 Year
0.79%
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This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. The ARM interest rate equals the LIBOR rate plus the lender’s profit margin. The rate is set by the banks in London, England.
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| Chart update 03/20/20 |
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Short (3 years or less)
Apr 2019
0.69%
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Medium (3 to 9 years)
Apr 2019
0.75%
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Long (9+ years)
Apr 2019
1.09%
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These rates determine minimum interest yield reportable on carryback financing. The AFR category is determined by the carryback due date. Rates are for monthly payments, reported for the coming month.
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Lots of charts and graphs with little meaning beyond that rates are and have been historically low . They provide Zero proof that a recession is imminent. Even the time frame is incorrect for predictive analysis. News Flash: CA is not the canary in the coal mine for the US Economy. Your problems there are unique to CA and how it has been mismanaged for decades.
Interest rates will remain relatively low for MANY years to come. The United States has such a large amount of debt that a significant increase in interest rates would leave the US government unable to make the payments on our debt. Defaulting on the deficit is not an option. Therefore rates will remain low.
Jeff Gundlach (the new bond king) says otherwise. IMO we will see 6% rates on 30yr mortgages in the next few years. The national economy is spiking now since money is still cheap to borrow but rates ARE going up so it makes sense to do some things now with cheaper money. Overbuilding due to speculation is a constant theme in our economy and recessions do happen. IMO mid 2019 will be the start of our next recession and the question is how shallow or severe it will be. To soon to tell due to to many factors, trade war, election results, foreign entities buying USA debt (or not).
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Very useful and concise information. It really tells the story very well.
I’ll have to admit the information overload is a factor in understanding, however it is good to know that First Tuesday continues to track these indices. Each chart references a brief explanation of its meaning. With continued support like this, outside of the Lending Industry interpretations, I’m starting to catch-on. First Tuesday,
you rock!
Excellent Set of GRAPHS 4 THE PUBLIC! 2 BAD THEY CAN’T UNDERSTAND IT UNLESS THEY HAVE A BUSINESS DEGREE LIKE ME!
Invest in property …while the rates are extremly low and our market prices in Ca.are half of the price as a home or piece of land 8-9 years ago. It may be years before we have a total recovery and the home price may not go up to where it was, butit is the best way to invest and cheaper to buy then to rent.
How low can it go? The U.S. government–up to its ears in debt–is still able to borrow at unbelievably low rates (well under 2%) from foreign investors. That ability is currently based solely on the belief that American will always pay its debts and is a good investment risk.
How about a little glimpse of macro-economics?
Now could that perception ever change? If ever the foreign investors come to decide that America might not pay its debts, then we would see a sudden rise in interest rates that would boggle the mind, kicking off a massive inflation in consumer goods or plunging us into a deeper depression with deflation—take your pick.
The U.S. government runs on borrowed money—borrowed from foreign investors.
FACT: The massive U.S. debt as it currently stands, could NEVER be paid off. But if the dollar were devalued (as Roosevelt did in 1934) the debt might be paid off in cheaper dollars. This would be concomitant with a rise in the Chinese yuan.
Here’s the catch: This would be done on the backs of the American people, as it would likely spur massive inflation and cause a spike in interest rates.
With rates so low, and other investment vehicles so turbulent, it would make perfect sense to invest in housing for rental income at this time.
ditto
Concise information, clearly explained. Good stuff!
Still more good news”
helpful Synopsis
You guys are great and I look to you for unadulterated truth.
No fear of me straying with great articles like this.
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Really appreciate your continued current info on all types of market rates, sales, home prices, etc. Very useful for those of us working this business every single day.
Thank you for all of the great info and data each month!
Hi ,
This is a very helpful analysis. Keep it up monthly for those that are serious about following ARMs.