Mortgage Rates Could Reach New Lows

Financing Options
Financing Options

Mortgage rates in the U.S. could hit new record lows as the coronavirus outbreak continues, but there are multiple factors preventing them from falling to zero. In and of itself, the Fed’s rate cut won’t cause rates on home loans to fall. Because mortgages are long-term loans, their interest rates tend to track long-term bond yields rather than short-term interest rates such as the federal funds rate. Indeed, this is not the first time the Fed has dropped its benchmark rate to zero. Rates were held at that level between December 2008 and December 2015 to help the U.S. economy weather the Great Recession. Even through all of that, the median rate on 30-year fixed loans was 4.2% during that time period, noted Danielle Hale, Chief Economist with And even if Treasury yields were to fall to the same level as the federal funds rate, rates on home loans likely wouldn’t follow. “Because mortgage bonds are considered riskier than government bonds, they tend to be slightly higher than 10-year rates,” Hale said. “Even if the market spread were to return to normal, given where 10-year rates have been in the last week or so, we’re looking at average rates on 30-year fixed loans around 2.5% at best.” Source: MarketWatch 

CoreLogic, Irvine, Calif., said rent prices in single-family rental properties increased 3 percent during 2019, the fastest such rate since 2016. Single-family rents increased at a 2.9 percent pace in December, the company’s Single-Family Rent Index said. CoreLogic Principal Economist Molly Boesel said she expects the sector’s growth trend to continue. “Employment growth is expected to remain strong in 2020,” she said. “This, coupled with rental vacancies reaching a 34-year low in the last quarter of 2019, could lead to continued rent increases in the near term.” Boesel noted low rental home inventory relative to demand is driving single-family rent price growth. Single-family rent prices have climbed since 2010, but year-over-year rent price increases have slowed since peaking at 4 percent in February 2016. December marked the sixty-eighth consecutive month in which low-end rentals propped up national SFR rent growth as newly formed households push up demand for entry-level properties, CoreLogic said. Rents in SFR properties with rent prices below 75 percent of the regional median increased 3.4 percent year-over-year in December while higher-end assets with rent prices exceeding 125 percent of a region’s median rent increased just 2.5 percent. Source: Core Logic

First American Title is saying that the potential for housing sales in 2020 is very good. Each month, First American tracks housing sales and inventory, to create an index measuring the potential for the housing market in the US. Its latest report says that the market potential for existing-home sales increased by 4.7 percent compared with a year ago, a gain of 240,050 sales. “The growth in market potential for existing-home sales is primarily fueled by positive market demand dynamics. In 2020, 4.8 million millennials will turn 30 – the peak age for home-buying. They’re fortunate to be entering the housing market at a time of historically low interest rates and a strong economy. However, there are challenges,” said Mark Fleming, chief economist at First American. “Millennials face a very limited supply of existing homes available for sale, especially homes in the entry-level price range.” What’s the biggest drag on potential sales? Baby boomers and low interest rates, apparently. “The same dynamic that’s making homes more affordable is preventing more supply from entering the market. Persistently low rates can discourage existing homeowners from selling,” said Fleming.“ “The aging of the U.S. population has also contributed to rising tenure length as many aging silent generation, baby boomer and Generation X homeowners decide to remain in their existing homes,” he added.   Source: Rise and Shred

Article provided by Central Bank, Matt Dazey









Contact Matt