Mortgage rates kick off 2021 with a new record low

Mortgage rates fell to another record low last week.

The average interest rate on a 30-year fixed-rate mortgage dropped to 2.65%, according to Freddie Mac. That's the lowest level in the nearly 50 years that the mortgage giant has been publishing the survey. The 15-year fixed-rate mortgage dropped to 2.16%.

Current rates are nearly a full percentage point lower than a year ago, when the 30-year fixed-rate averaged 3.64% and the 15-year was 3.07%.

While the low rates have brought home buyers into the market, high demand and low inventory has increased prices.

"Despite a full percentage point decline in rates over the past year, housing affordability has decreased because these low rates have been offset by rising home prices," said Sam Khater, Freddie Mac's chief economist.

He added, though, that the forces behind the drop in rates have been shifting over the last few months and rates are poised to rise modestly this year.

"The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season," said Khater.

For now, though, this means that buyers can still take advantage of low rates to offset the steep rises in home prices that has occurred in many parts of the US over the last year, said Danielle Hale, chief economist for Realtor.com.

"But finding a home will continue to be challenging," she said. In December, the median listing price was up 13.4% from a year ago while the number of homes for sale dipped below 700,000 for the first time according to Realtor.com.

"The future outlook for mortgage rates is likely higher thanks to a changing landscape in Washington," Hale said.

On Wednesday, the 10-year Treasury moved above 1% for the first time since March, as the outcome of the Georgia Senate race seemed to indicate the possibility of less gridlock in the federal government, she said.

"However, this doesn't preclude the possibility of another record low in the near-term," said Hale.