Economic Report: Mortgage rates hit a 2-month low, offering house-hunters the only reprieve from market turmoil

A sign advertising a lower price sits next to a real estate sign in Westerville, Ohio

Rates for home loans tumbled for a third week, making real estate one of the only places to hide — at least for now.

The 30-year fixed-rate mortgage averaged 4.75% in the Dec. 6 week, down six basis points, mortgage liquidity provider Freddie Mac said Thursday. The 15-year fixed-rate mortgage averaged 4.21%, down from 4.25%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.07%, down three basis points.

Those rates don’t include fees associated with obtaining mortgage loans.

Mortgage rates track the benchmark 10-year U.S. Treasury TMUBMUSD10Y, -2.15%  note. Bond yields have plunged over the past few weeks as investor fears about geopolitics have slammed stocks. As investors snatch up the perceived safety of bonds, their prices rise and yields fall.

See: 4 reasons why the 10-year Treasury yield has tumbled below 3%—again

That’s a “welcome relief” to prospective homebuyers, Freddie Mac Chief Economist Sam Khater said.

Khater’s team on Wednesday published a fresh analysis of the housing supply shortfall. Over the past five decades, they showed, there has only been one year in which the supply of new housing was lower than in 2017. That was 1982, a year in which the Federal Reserve intentionally caused a recession to bring inflation to its knees. Throughout that year, the 30-year fixed-rate mortgage averaged 16.04 – and that was a sign of progress, because it had averaged 16.64% in 1981.

Also read: The new housing play: helping priced-out renters become long-distance landlords

The U.S. needs to be building about 370,000 more units per year than it currently is, the Freddie Mac team said. Put another way, they said, “we estimate that the U.S. economy is about 2.5 million housing units below what is needed to match long-term demand.”

That may be a tough order. Home builders face stiff headwinds, tight margins, and even a skittish customer base. “A troubling sign for 2019 is that the primary concern among prospective buyers is that prices may fall in 2019 which would reduce their equity if they purchase now,” said BTIG Research’s Carl Reichardt, Jr. in a recent client note. “Buyers are aware that builders are motivated sellers,” Reichardt said, yet it’s hard for builders to slash prices.

Read: Toll Brothers orders tumble, but housing market comeback may be in the cards

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