On Dec. 16, the Federal Reserve announced it would be keeping its short-term interest rate near zero. The Fed cut rate to near-zero levels in March, and in recent policy meetings has stated they will likely remain that way for the next couple of years as the economy rebounds from the COVID-19 pandemic.
“The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” said the Fed in its FOMC statement. “Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”
The 30-year fixed rate mortgage decreased this week, hitting a record low of 2.67 percent, according to the National Association of REALTORS® (NAR). NAR predicts that the 30-year fixed-rate mortgage will average 2.9 percent and 3.0 percent in the first and second quarter of 2021, respectively.
“There is no doubt that these ultra-low mortgage rates significantly lower the borrowing cost, making home-buying more attractive to renters. In the meantime, the share of millennial renters that can afford to buy the typical home rose in 2019 by 9 percent and 3 percent compared to a year and 5 years earlier, respectively. With both wages and consumer savings rising during the pandemic, expect home-buying activity to remain strong in the year ahead,” said NAR Research Economist Nadia Evangelou in a statement.
“However, affordability conditions vary by area and demographic. Fast-rising home prices seem to be eroding the benefits of these low rates in some areas, making it more difficult for some renters to accomplish their home-buying dream. Nationwide, 32 percent of Black millennial renters can afford to buy the typical home compared to 51 percent for white millennial renters. Respectively, 43 percent of Hispanic millennial renters can afford to buy the typical home,” Evangelou added.
How the Industry Is Responding:
“The outcome of the Federal Reserve’s meeting this week that we are closely tracking will be the evolution of the asset purchase program. Recently longer-term Treasury rates have begun to trend upward, giving indications that we may see rising mortgage rates in the near future. If the Fed chooses to shift asset purchases more heavily to longer-term securities or MBS, it would likely extend the current period of exceptionally low mortgage rates and continue to provide a strong tailwind for home sales. We are also monitoring how the economic outlook evolves now that two vaccines have reached the market. A combination of an improved medium-term outlook and a shift toward long-term asset purchases would be a strong indicator for continued strength in the housing market as we head into 2021.” — Ruben Gonzalez, Chief Economist, Keller Williams
“The Federal Reserve reaffirmed their commitment to keep short-term rates at zero for the foreseeable future, noting the slowing pace of economic growth due to the intensification of the pandemic. We fully expect that they will maintain rates at the zero lower bound for years. While the Fed has been clear regarding their plans for the federal funds target, they had been less so with respect to asset purchases. Today’s announcement [at press time] provided a further commitment that they would continue to purchase Treasuries and MBS at the current pace until there’s ‘substantial progress’ towards a stronger economy. With the vaccine distribution commencing, we are hopeful to see such progress over the course of 2021.
“Monetary policy has been quite supportive for housing and mortgage markets. Low rates have stimulated an epic refinance wave, and have also increased affordability for many potential homebuyers. The Fed today has provided additional assurance that supportive policies will remain in place, and there is hope that an additional fiscal stimulus package will soon be passed to support households and businesses currently in distress.” — Mike Fratantoni, SVP and Chief Economist, Mortgage Bankers Association