Will Mortgage Rates Go Even Lower in 2021?

Doug Duncan chief economist of Fannie Mae was interviewed last week by Housing Wire and I will highlight some of their discussion.
Doug believes mortgage lenders will close over $3 trillion in mortgages this year, the most since 2003.
He believes mortgage rates will average 3% for the remainder of this year, down from 3.2% in the 2nd quarter.
In 2021 he is predicting that mortgages will average 2.9% in the first 6 months and an even lower 2.8% in 2021.
One reason why mortgage rates have been dropping the last 2 months is the margin between mortgage rates and the 10 Year Treasury have dropped some in the last 2 months. in April the average margin hit 265 basis points and is now down to about 230 basis points. But, last year the margin was 180 basis points and I can remember before Dodd-Frank when it was 150 basis points or less. So, if this margin compresses by 50 bps we could see mortgage rates of 2.5% or a little lower.

If the margin compresses this much it will take many months to get there I believe. Why? We and probably every mortgage lender is over-whelmed with business. In early April our company had a loan pipeline of $1.4 billion our highest on record. Now in July our pipeline is 50% higher at $2.1 billion. Yes rates could be even lower, but why? We have more loans in our pipeline than ever before.

For a mortgage lender the only practical and easy way to "turn off the faucet" is to raise rates or keep them from falling further. I expect this will happen very soon.