How Record Low Interest Rates Are Impacting The Housing Market
Earlier this year, mortgage rates dropped below 3% for the first time in more than 50 years.
Despite economic downturn, many Americans are in the market to buy or sell a home.
As long as T-bill rates remain low, mortgages will likely be affordable.
Even before the COVID-19 outbreak, mortgage rates were steadily falling, providing home buyers with the lowest rates they’ve seen in more than 50 years. According to mortgage buyer Freddie Mac, 30-year fixed rate mortgages fell to 2.98%.
In the month of May, despite the economic turmoil triggered by the COVID-19 outbreak, pending home sales actually increased by an impressive 44.3%. Lenders have also witnessed a major increase in refinance applications.
The Context: The virus outbreak has likely led many people to begin looking for new housing situations. Finding a more affordable mortgage or moving to a location with better working-from home features are two reasons buyers have been flocking to the housing market.
One of the reasons that mortgage rates are so low is that interest rates on Treasury bonds have declined significantly.
On March 3, the market saw 10-year Treasury bills drop below 10% for the first time ever. This makes it more affordable for major lenders to access cash and, as a result, extend mortgages to interested buyers.
What's Next: In order to prevent future economic turmoil, interest rates will likely remain low for at least the rest of 2020.
If rates are raised, they will likely be raised gradually, moving no more than one-quarter of a percent at a time.
As Federal Reserve Chair Jerome Powell said in March, he does not believe that negative interest rates are “appropriate” for the United States at this time. This effectively limits the range of strategies the Fed can possibly enact.
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