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Mortgage rates fell to a new all-time low for the fourth time this year. But there is significant upside risk in the low rate environment, and Americans may not want to wait too long to lock in rates.

The 30-year fixed rate mortgage was on average 3.13% for the week ending June 18, down eight basis points from the previous week, Freddie Mac FMCC,
-2.93%
reported Thursday. The previous record was 3.15% at the end of May. A year ago, mortgage lending over 30 years averaged 3.84%.

The 15-year fixed rate mortgage fell four basis points to an average rate of 2.58%. The 5-year Treasury-indexed variable-rate hybrid mortgage fell one basis point to 3.09%.

“Mortgage rates have hit a new all-time low as inflationary pressures drop, putting many homebuyers in the mood to buy,” Freddie Mac chief economist Sam Khater said in the report.

Interest rates on home loans roughly follow the direction of long-term bond yields, including 10-year Treasuries. The 10-year Treasury yield TMUBMUSD10Y,
1.452%
rocked over the past week in response to weakness in the stock market over concerns over rising coronavirus infections in many parts of the country.

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“The rise in coronavirus cases across the country has left market participants skeptical about the sustainability of the economic recovery,” said Matthew Speakman, economist at Zillow ZG,
+1.41%
. “It triggered a massive sell-off of stocks and a flight to safe-haven bonds – something that normally drives mortgage rates down.”

“Rates might as well start to rise again, especially if key economic data or measures to contain or treat the virus show significant improvements.


– Matthew Speakman, economist at Zillow

But now the mortgage market is at a crossroads, Speakman said. And it all depends on what happens with the spread of COVID-19 from now on.

“More bad news regarding the rise in coronavirus cases would likely send rates back down, possibly to new lows,” Speakman said. “However, rates might as well start to rise again, especially if key economic data or measures to contain or treat the virus show significant improvements.”

Rising rates could cause problems for the housing market as a whole. Eager to lock in cheap financing, buyers have flocked to apply for home loans to buy a property. There is evidence that low rates, coupled with pent-up demand caused by coronavirus stay-at-home orders, are causing a significant recovery in the housing market.

A rate hike would hurt the real estate market’s ability to rebound. But that’s not the only headwind the market is facing. “It would be difficult to keep up the momentum in demand as unsold inventories were at near record highs as the pandemic approached and they have only declined since,” Khater said.

In other words, with very few homes for sale, there is a fairly low cap on the level of sales activity that can go into the foreseeable future.

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