Declining Mortgage Rates May Perpetuate the Recovery
With the housing market having rebounded quickly and now maintaining a holding pattern, there’s been some apprehension around whether or not the recovery will be truly sustainable. There’s persistent discussion around whether or not the elevation in property values have been too swift, and if market trends from the past two quarters currently mimic those which preceded the 2008 bubble. Despite the astounding profits major homebuilders reported in 2013, there need be more concrete economic fundamentals for market observers to feel truly secure.
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However, according to a new story from USA Today, current mortgage trends spell major positives for housing’s long-term outlook. As the report outlines, the fifteen-year fixed-rate mortgage has reached a record low as of last week. Standing at a mere 2.61%, this represents a remarkably diminished rate of interest and an even lower rate than the 3.12% recorded last year. This dip in mortgage rates is comprehensive beyond the 15-year category, as the consensus average of all mortgage rates are currently maintaining at an exceptional low.
So What Does This All Mean?
The record low in mortgage rates may allow the housing market to sidestep factors that would otherwise confound the recovery. As I’ve noted before, a lack of young homebuyer equity and shaky job prospects remain a looming threat for the housing market. If young professionals are turned away from purchasing new homes due to concern around fiscal complications, then reduced loan interest will help prevent mortgage from becoming financially burdensome. Mortgage rates have been suppressed since not long after the recession broke, and the fact that they're decreasing to record lows means that new homebuyers are less likely to accrue monetary complications from closing on a first home.
With a bulwark of prospective homeowners now coming to the fold, the nationwide dip in mortgage rates will only help make long-term loan management a safer option. Considering that today's 20 and 30-somethings are shouldering an enormous volume of student debt, many are hesitant to assume responsibility for a second loan. Health in the housing sector, let alone the American economy as a whole, will be defined by the financial security of the current generation of young adults. Diminished mortgage rates will brighten the financial prospects for the generation who will soon become the strongest contributors to the U.S. economy.
To unearth what's often a clichÃ©d phrase, keeping mortgage rates minimal functions as a variety of investment in the future. It will likely be a major step towards preventing both loan default and purchase rate stagnation, and will serve to help maintain current trends in the housing market. Considering the speculation that elevation in property values and increased sales rate are partially being orchestrated by hedge funds, low mortgage rates will help more âorganic' market activity like individual home purchases persist unimpeded. And if plans to make credit more accessible come to pass, then reduced interest rates will make these new measures all the safer.
Photo: Great Valley Center