Title: U.S. Homebuyers Unlikely to See a Return to Super-Low Mortgage Rates, Experts Warn
Subtitle: Pandemic-induced anomaly unlikely to be repeated in the foreseeable future, says chief economist
Date: [Insert Date]
By [Author Name]
If you’re a U.S. homebuyer eagerly awaiting the return of super-low mortgage rates, you might be disappointed. According to Lawrence Yun, chief economist at the National Association of Realtors, the era of 3% interest rates for 30-year fixed mortgages is over and is unlikely to return anytime soon, possibly even for decades.
Yun states, “One can never truly predict the future, but I don’t see mortgage rates returning back to the 3% range in the remainder of my lifetime.”
The exceptionally low mortgage rates of 3% or less that briefly emerged during the pandemic were an anomaly, Yun explains. On average, 30-year fixed mortgage rates have historically hovered around 7% over the past 50 years, as per Freddie Mac data.
The pandemic brought about economic uncertainty reminiscent of the 2008 financial crisis. To stimulate growth and combat a potential recession, the Federal Reserve took similar measures as in 2008. They injected money into the economy, cut interest rates to nearly 0%, engaged in quantitative easing by buying government bonds and mortgage-backed securities.
This strategy led mortgage rates to hit rock bottom at 2.67% in January 2021, with their fluctuations closely linked to the Fed’s benchmark interest rate and quantitative easing measures. Additionally, the U.S. national debt increased by approximately 30% between 2020 and 2022 due to trillions of dollars in Covid-19 relief and stimulus spending, according to Treasury Department data.
However, unlike in 2008, the economy rebounded swiftly, and rising inflation became a concern. By spring 2021, inflation rates exceeded the Fed’s desired benchmark of 2%, prompting the central bank to raise interest rates again. Consequently, mortgage rates followed suit and started to rise.
Yun believes that due to inflation and ongoing federal spending deficits, the possibility of the Fed reducing interest rates to nearly 0% again, even during times of financial panic or another pandemic, is unlikely.
Economists who spoke to CNBC Make It echoed Yun’s views, emphasizing that the unique circumstances surrounding the pandemic were responsible for the exceptionally low mortgage rates seen in 2020. They do not anticipate a return to such record-low rates.
Dottie Herman, vice chair at Douglas Elliman, remarked, “I haven’t seen mortgages that low in over 30 years in the business… It’s highly unlikely we’ll see rates that low anytime soon.”
As of July 6, the current average mortgage rate for a 30-year fixed-rate mortgage stands at 6.81%, slightly down from November 2022’s peak of 7.08%, as per Freddie Mac data. However, projections indicate a gradual decline over the next year.
While the prospect of super-low mortgage rates may be a distant possibility for now, prospective homebuyers should stay informed about current market trends and seek expert advice as they navigate the ever-changing landscape of real estate financing.
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