Mortgage Rates Hit Record Low: ETF Winner & Loser

Thanks to an ultra-dovish Fed and risk-off trade sentiments amid the pandemic, mortgage rates dropped to another record low last week, for the 13th time this year , per CNN. The average interest rate on a 30-year fixed-rate mortgage fell to 2.72%, according to Freddie Mac (OTC:FMCC). That was the minimum level seen in the nearly 50 years of the mortgage giant's survey. The 15-year fixed-rate mortgage tumbled to 2.28%.

"Weaker consumer spending data, which accounts for the majority of economic growth, drove mortgage rates to a new record low," said Sam Khater, Freddie Mac's chief economist, as quoted on CNN. "While economic growth remains unstable, strong housing demand continues to have a domino effect on many other segments of the economy," the economist said.

Against this backdrop, two segments of the economy and the investing world should stand to gain/lose. Below we highlight those.

The demand for housing has been robust this year. Sales of existing homes in October breezed past expectations, rising 4.3% from September and 26.6% annually. The median price of an existing home sold in October was $313,000, up 15.5% annually. That is the highest median price on record . It shows higher demand for housing.

The coronavirus outbreak has made the work-from-home option a big hit. Companies now will likely be offering the option permanently with more ease. So many people will now continue to be moving to suburban areas to avoid high expenses involved in a dense and expensive city. Suburban areas offer more affordable homes. Along with low mortgage rates, this move-to-suburbs trend should also keep homebuying strong in the coming days.

“The surge in sales in recent months has now offset the spring market losses. With news that a COVID-19 vaccine will soon be available, and with mortgage rates projected to hover around 3% in 2021, I expect the market’s growth to continue into 2021,” per the NAR’s chief economist, Lawrence Yun, as quoted on CNBC.

As a result, iShares U.S. Home Construction ETF record number of homeowners to refinance . For mortgage-backed securities, mortgage holders tend to refinance their mortgages amid falling rate environment, which causes the security holder losing the level of future interest that a holder estimated before.

This is a negative for mortgage-backed securities investing. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Written By: Zacks Investment Research