ECONOMY & MORTGAGES: Will Rates Stay Near Historical Lows?
Inflation worries, strange employment trends, energy price increases, battles over mask mandates, and supply chain problems dominate the economic headlines. Housing, however, operates in its own world, and low inventory leading to higher prices continues to be the headline story.
While some of this can be blamed on the pandemic (people sitting tight) and on problems with new construction (a lack of both workers and materials), the broader uptick in prices has been years in the making. Growing populations are intersecting with decades of under-construction, and the resulting price impact is textbook economics.
This hits first-time buyers hardest. “With inventory at only 2.4 months’ supply, and median home prices increasing nationally at 13%, it was not surprising to see the first-time homebuyer share of the market drop again to 28% (from 31% last year),” said Mike Fratantoni, SVP and Chief Economist for the Mortgage Bankers Association (MBA).
But Lawrence Yun of the National Association of Realtors expects more supply soon, stating “As mortgage forbearance programs end, and as homebuilders ramp up production, we are likely to see more homes on the market as soon as 2022."
Where are mortgage rates headed? Rates are technically up from historical lows set early in 2021, but only barely (see table), and still in the very low 3% range or even less. That’s still amazingly low. But where to next?
The bond markets are giving us some clues. The 10-year Treasury rate, which tends to track with mortgage rates, is pointing up since our last issue, though a bit volatile now. Bond traders are also following two key Federal Reserve moves closely:
• This month, the Fed is starting to reduce its purchases of mortgage-backed securities (MBS). This is expected to raise home loan rates as the biggest MBS buyer leaves the market.
• It’s also signaling a far-off raising of short-term rates, citing a concern about acting too soon and stifling economic recovery. But, they are starting to hedge about inflation, indicating they may be reconsidering their timing!
That means higher mortgage rates are likely ahead. While this should slow the rate of home price increases, nobody likes to leave historically low mortgage rates on the table. If you’re considering a purchase, we may be entering a period where home prices could begin to level off (but probably not drop), and where rates are still in historically-low ranges. If a purchase or refinance is in your future, this would be an ideal time to talk, so we can get you positioned for success!
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