skip to Main Content

California Mortgage Rate Trends: Another Record Low to Start 2021

Another year, another record low for California mortgage rates. This has been something of a pattern for the past few months. Just when we think mortgage rates couldn’t drop any lower, they prove us wrong by falling yet again.

Last week, a nationwide survey revealed that the average rate for a 30-year fixed mortgage loan had dropped to 2.65%. That was an all-time record low, as of that date. Not once in 50 years have mortgage rates averaged that low. A significant milestone, to say the least!

Here’s a roundup of California mortgage rate trends at the start of 2021, and some long-term predictions for the rest of the year.

California Mortgage Rate Trends: Record Lows in 2021

Each week, the research team at Freddie Mac conducts a nationwide survey to find out what kinds of mortgage rates lenders are issuing to borrowers. It’s one of the longest running surveys of its kind, dating all the way back to the 1970s.

In their latest survey (for the week of January 7, 2021), Freddie Mac reported that the average rate for a 30-year fixed mortgage loan in California and nationwide had dropped to 2.65%. That was an all-time record low, when that report was issued.

The average rate for a 15-year fixed mortgage loan dropped to 2.16% last week, also an all-time record low.

These record-low mortgage rates have helped fuel the real estate market in California, by pulling home buyers off the sidelines and into the market. A lot of people realize that we may never see rates this low again — or at least for a long time. This realization is motivating a lot of home buyers across California to purchase now, while rates are low.

We have seen surprisingly strong demand from buyers throughout the pandemic. Last month, the California Association of Realtors reported the home sales nationwide were up by more than 26% from a year earlier. Record-low mortgage rates in California have contributed to that demand.

ARM Loans Less Attractive These Days

Here’s another interesting mortgage rate trend in California, which started last year. The 30-year fixed-rate home loan (the most popular type of loan among borrowers) currently offers lower interest rates than short-term ARM loans.

This is something new. In the past, ARM loans have almost always offered lower mortgage rates (on average) than the longer-term fixed mortgage products. But that began to change in 2020, when 30-year rates began dropping to record lows.

Given these trends, it’s no surprise to see a decline in ARM loans across California and nationwide.

By using a 30-year loan, borrowers can secure a lower rate while also enjoying the long-term predictability that comes with this type of loan. In the current mortgage rate environment, it’s hard to make a case for the 3-year or 5-year adjustable (ARM) loan.

Of course, all this could change over the coming months. If 30-year fixed mortgage rates in California start to creep upward in 2021 — as they’ve been predicted to do — ARM loans could once again offer better deals. But all that remains to be seen. This is just one of many California mortgage rate trends we are tracking closely.

Housing Affordability Could Decline Further in 2021

On the mortgage rate side of things, there has been nothing but good news for home buyers in California. Mortgage rate trends have followed a downward trajectory for most of 2020, declining to one record low after another.

Home prices are another story.

While rates have been dropping, home values in most California cities have been rising steadily. In fact, many housing markets across the state have set record highs in terms of their median home prices.

Related: California real estate outlook 2021

The flip side of this is that housing affordability has dropped. When prices rise steadily — as they did throughout 2020 — it reduces housing affordability across the board.

So we have a couple of noteworthy trends happening within the California real estate market. On the one hand, we have record-low mortgage rates attracting buyers into the market. On the other hand, we have steadily rising house prices that are making homes less affordable for many would-be buyers.

What’s in Store for the Rest of the Year?

That’s a recap of California mortgage rate trends, as of January 2021. They are still hovering at historical lows, giving home buyers and homeowners a chance to save money.

But what about the future? As we wrote in a previous blog post, California mortgage rates are expected to creep upward later in 2021.

In its most recent survey report, Freddie Mac’s researchers said they believe mortgage rates are poised to “rise modestly” this year. Similarly, a recent housing market forecast from predicted that 30-year mortgage rates would be up to around 3.4% by the end of this year.

According to the December 7 report from Freddie Mac:

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

Granted, such predictions are the equivalent of an educated guess. But it’s a trend worth watching.┬áThe bottom line for home buyers in California is that mortgage rate trends are favorable right now. Currently, well-qualified borrowers have the opportunity to lock in a mortgage rate below 3%.

But we don’t know how long these conditions will last. Analysts from Freddie Mac,, and the Mortgage Bankers Association have all predicted that home loans rates will rise slightly over the coming months. So a sense of urgency might be warranted.

Need a mortgage? Located in the Bay Area, Bridgepoint Funding serves the entire state of California and offers a wide variety of mortgage products. Please contact us if you would like to receive a quote, or if you have questions about the home loan process!

Mike Trejo

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

Back To Top