Mortgage Outlook: Push Continues to Keep Rates Low

May mortgage rates forecast

Mortgage rates are likely to stay near historical lows in May and for a long time after, if the Federal Reserve gets its way. The Fed has succeeded so far in what it set out to do at the start of the COVID-19 crisis: push mortgage rates down and keep them there. At its regularly scheduled policy meeting April 29, the central bank announced that it would keep buying mortgage-backed securities to keep credit flowing.

Money is the answer

In late February, there was uncertainty about how the coronavirus would affect the economy. Mortgage rates fell as a result of that uncertainty, and then, in March, swung wildly up and down amid market turmoil. The Federal Reserve stepped in, pledging to pour as much money into the mortgage finance system as necessary “to support smooth market functioning.”

It’s a lot of money. The Fed has bought more than half a trillion dollars’ worth of mortgage-backed securities since the middle of March. By buying mortgage-backed securities, the Fed gives lenders assurance that they’ll have enough money to keep funding mortgages to consumers. The Fed’s aim is to keep mortgage rates stable by acting as a reliable buyer.

The tactic is working: Mortgage rates settled at low levels in early April and remained there. From April 3 to the end of the month, the average rate on the 30-year fixed-rate mortgage remained comfortably between 3.25% and 3.5% APR, according to NerdWallet’s daily mortgage survey. The 30-year fixed averaged 3.363% APR in April, the lowest monthly average in the history of NerdWallet’s survey.

To May and beyond: Fed aims for low, stable rates

If the Fed wanted mortgage rates to be higher, it would cut back more on its purchases of mortgage-backed securities. That’s not happening anytime soon. The Fed said in its most recent announcement that it foresees “considerable risks to the economic outlook over the medium term.” In a news conference, the Fed’s chairman, Jerome Powell, defined the medium term as “the next year or so,” depending on the course of the COVID-19 pandemic and its economic consequences.

The Fed’s policy on mortgage rates applies to most home loans — those that, in one way or another, have federal backing. But jumbo mortgages aren’t backed by the federal government, and they haven’t been as readily available during the COVID-19 crisis because the secondary market for them has dried up.