Deeply cheap mortgage rates are giving many Americans a welcome diversion from COVID-19 — by putting them in a homebuying mood.
Home sales shot higher last month, according to several different barometers; the nation’s homeownership rate is now the highest since the Great Recession; and buyers are applying for mortgages at a much faster clip than at this time last year.
People in the housing industry say it’s all part of a homebuying boom, which they’re seeing up close. But what about prices? And will today’s super-low mortgage rates stay that way?
If you’re feeling bitten by the homebuying bug, here’s what you need to know.
Homebuying is hot this summer, thanks to low rates
After home sales went cold during the spring due to coronavirus lockdowns, some of the lowest mortgage rates on record have helped bring back the heat.
“At summer’s midpoint, real estate markets are sizzling with activity, as buyers are leveraging low mortgage rates to adapt to a world of extended social distancing, remote work and home schooling,” says George Ratiu, senior economist with Realtor.com.
Average rates on 30-year fixed-rate mortgages have tumbled below 3% for the first time ever. And one major lender just announced a 15-year loan with rates under 2%.
To take advantage of amazing mortgage rates, homebuyers who were quarantining on the sidelines have been getting in the game in recent weeks.
The number of houses under contract jumped 16.6% from May to June, the National Association of Realtors said this week. Sales of previously owned homes saw a record increase last month, and new homes sold in June at the strongest pace in 13 years.
Applications for “purchase mortgages” to buy homes last week were up 21% from the same time in 2019, and the government says 67.9% of U.S. households now own their homes — the most since 2008.
Home prices are rising, but maybe not for long
Corey Burr, senior vice president with upscale brokerage Sotheby’s International Realty in Chevy Chase, Maryland, looks at the current housing market and uses the b-word: boom.
“The activity my group has experienced since our governor relaxed the lockdown during the second week of May can be described as a boom,” Burr says. “We’ve sold 21 properties in just over nine weeks, and that’s a lot of luxury real estate.”
The demand for properties and shortages of homes for sale have pushed prices to an all-time high, according to new Realtor.com data. In July, the national median price was $349,000 — up $27,000, or 8.5%, from a year ago.
Houses are in short supply because the coronavirus pandemic delayed new construction and spooked sellers. Many of them have put off listing their houses or have taken their homes off their market for fear they’ll catch COVID-19 from prospective buyers.
But sellers have benefited as the pandemic has worsened an existing housing shortage, says Danielle Hale, chief economist for Realtor.com. Homes are selling quickly and for more money.
“The good news for potential buyers is: Competitive conditions should help bring more sellers to the housing market so they have options to choose from,” Hale says. Which should help bring down prices.
What will mortgage rates do?
Here’s something else to make homebuyers happy: It’s likely that mortgage rates will stay near their historically low levels for months, maybe years, thanks to the Federal Reserve.
Fed policymakers met this week and kept their influential interest rate (called “the federal funds rate”) down near zero, as part of their economic war against the coronavirus.
America’s central bank also is maintaining other policies that have driven down mortgage rates, like its campaign of buying up mortgage-backed securities — investments that are made up of bundles of home loans.
Though low mortgage rates may be here to stay, at least for the forseeable future, borrowers shouldn’t wait for them to fall even more, says Matthew Speakman, an economist with Zillow.
“The market isn’t eager to move rates much lower than their current levels, in part because these historically low rates have prompted a steady stream of business that could be tapping out many lenders’ capacity to field loan requests,” Speakman says.
That means if you decide to buy a home and take out a mortgage, you’ll find some lenders aren’t offering rates under 3% — because they have plenty of business and don’t need yours. You’ll have to shop around for your loan and compare rates from several lenders to get the best deal.
Do some comparison shopping for your homeowners insurance, too — so you’ll get the coverage you want without paying too much.