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Low Mortgage Rates Are Here To Stay Thanks To The Fed

Remember when people were stockpiling toilet paper—for no other reason than other people were stockpiling toilet paper? At the time, a global pandemic seemed like a good rationale to pad reserves. Yet for some, seeing once-plentiful shelves empty out proved to be anxiety-inducing.

Is the same happening with housing?

We are still beset with a virus that has forced millions of people into unemployment and prompted the government to pass a $2.2 trillion economic stimulus bill—the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. Even so, the housing market is going gangbusters.

One reason is record-breaking low mortgage rates. The average rate this week on a 30-year fixed-rate mortgage is 2.87%—one basis point above the lowest rate on record, according to Freddie Mac’s Primary Mortgage Market Survey. This gives consumers incredible buying power—provided they can find a house they can afford.

Home prices are not low. In fact, they’re up 11% year-over-year—the 18th straight week of home price increases, according to data from Not only that, but homes aren’t lingering on the market. They’re selling 11 days faster on average than about this time last year, so buyers need to be on their toes, with financing in hand and a strong stomach for competing with other bidders.

Many Shoppers, But ‘There Shouldn’t Be a Rush to Buy’

Like toilet paper in April, the supply of homes for sale today is low and getting lower. For-sale housing inventory is down 39% year-over-year, which is driving up home prices, according to Still, it’s not driving buyers from the market.

Mortgage applications to buy were up 25% from last year during the week ending Sept. 4, according to the National Association of Realtors. Since May, mortgage applications to purchase are above 2019 levels.

But some experts say homebuyers shouldn’t feel pressure to get a house right away, citing the recent Fed commitment to helping the lending industry as well as low inflation projections for years to come.

“There shouldn’t be a rush to buy,” says Ralph B. McLaughlin, chief economist and senior vice president of analytics at Haus, Inc. “Rates will continue to be low for some time, and there’s hope that inventory should rise early next year, which should mean more choice for inventory-constrained home shoppers.”

2 Major Buyer Advantages: Inflation and Rates Will Remain Low

The Federal Reserve reaffirmed its commitment on Wednesday to keep the lending market liquid by maintaining its buying level of Treasury securities and agency mortgage-backed securities. This strategy, also known as quantitative easing, helps keep the flow of lending going between borrowers and consumers, which is key in keeping mortgage costs down and credit availability levels up.

The Federal Open Market Committee (FOMC), as expected, also kept its overnight lending rate low—at the target range of 0%-0.25%—at least until inflation tops 2%, which is a long way off according to most experts.

“Core inflation hasn’t grown over 3% on a consistent basis for decades now,” says Logan Mohtashami, a housing data analyst.

Low inflation is good news for borrowers as it keeps a lid on mortgage rates and, theoretically, home prices. However, we’re facing more buyers than houses, which is putting low-inflation help in timeout.

Buyers Should Consider Multiple Factors Before Stretching Their Limits

Homebuyers, especially those on a tight budget, might want to wait before blowing their savings on a house right now. With so much uncertainty about how the pandemic will permanently change where people live and work, real estate might look very different next year.

Not to mention, the election could change housing inventory in this country if Joe Biden wins. As part of his housing plan, he’s proposed several tax incentives for states that roll back some of their strict single-family zoning laws. By removing zoning restrictions, construction can ramp up and help satisfy housing demand.

Additionally, the high tariffs the U.S. imposed on Canadian lumber have stifled construction and increased the cost of new homes. This could change, too, under a Biden presidency or if President Trump decides to hammer out a better deal with Canada. In August, the National Association of Homebuilders wrote a letter to Trump asking him to renegotiate high tariffs.

The main advantage for today’s buyers is low interest rates. But those are not expected to change anytime soon, which means it might make sense to wait until inventory expands and prices come down. Of course, there’s always the risk that prices continue to rise, which has happened even as unemployment numbers remain at elevated levels.

“Right now, the forces of supply and demand are having a great influence on home prices,” says Cameron Beane, head of pricing and secondary markets for TD Bank Mortgage. “The shift in where people want to live, and how much they can afford to spend on housing (which is still constrained given the level of unemployed or underemployed) are keys to home prices in the current environment.”

For would-be buyers, this could be a good time to save up for a down payment. Keep in mind, a down payment of less than 20% triggers private mortgage insurance (PMI), which could add hundreds per month to your housing costs. This could also be a good time to raise your credit score so that you qualify for the lowest mortgage rate available.

Author: Natalie Campisi

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