[adeelk93]

It will, but not just yet. There’s too many people trying to refi right now and supply can’t keep up with demand, so rates are higher than they should be. Give it another 3-6 months and I wouldn’t be surprised if mortgage rates fell by another 1%.

[SomewhatLikely]

There must be some floor based on default rates right? If 2% of people default you can't go below 2%. And of course default rates go up in recessions.

[adeelk93]

I personally don’t think there’s a floor, all that matters is spread over treasuries. If we go with your 2% number, that’s the spread between the mortgage risk and the risk-free rate. If risk-free goes to -1%, then it’d make sense for mortgages to go to 1%. This is something that already happens in European countries. I don’t think there’s an inherent reason for the risk-free rate to be a positive number.

On a different note, 2% default != 2% loss. Mortgages are secured by the property, losing investors only a small fraction in foreclosure, so a 2% default * 25% severity = 0.5% loss.

[SomewhatLikely]

All very good points! Thanks.

[JoshuaDavid]

If 2% of people default per year you can't go below 2%.

[kshacker]

Do we know what were the bottom 30-year fixed rates were after 2008, and how long it took to get there?