Rates to Stay Low

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Fed Rates and Mortgage Rates Make it a Buyers Market

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Between the Fed Rates expected to stay low and the mortgage rates at all time lows, this is a good time to be buying.

Low mortgage rates make it a good time to buy

What a difference a year makes. In February 2019, it was reported on how it was increasingly difficult to find a market where it made more sense to buy than rent. Fast forward 16 months and one pandemic later, and it’s safe to say that the rent-versus-buy gap is only shrinking with each passing day.

According to realtor.com, over 80% of most large metropolitan areas saw the gap between the cost of renting vs. buying a home shrink in the first quarter of 2020. And that was at the beginning of the COVID-19 pandemic’s impact on the housing market. Since the end of the first quarter, of course, COVID-19 has dramatically and further affected the economy. As such, it remains to be seen just how local housing markets calibrate to new conditions.

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Certainly one factor contributing to a further tightening of the gap is the fact that mortgage interest rates continue to dip. As of June 25, the average rate for a 30-year fixed mortgage remained at an all-time low at 3.13%. Meanwhile, rents are dropping, but not at the same pace that mortgage rates are declining. Certain markets are seeing more rent decreases than others, such as Boston, Detroit, New York, Salt Lake City, San Francisco and San Jose, California.

For some, the lower interest rates make purchasing a home more economically viable and practical than continuing to rent, so it’s not surprising that we saw U.S. home prices actually grow by 5.5% in April despite the pandemic.

The numbers

According to realtor.com, the monthly cost to purchase the U.S. median home was $1,584 in the first quarter of 2020, compared to the median monthly rent of $1,391. On average, buying the median priced home accounts for 29% of the national median income, while renting accounts for 25%.

It’s important to note, though, that the majority, or 81%, of the 593 U.S. counties analyzed still favored renting over buying in the first quarter of 2020. However, over the previous year, 21 of the 593 U.S. counties analyzed switched from being more affordable to rent to being more affordable to buy.

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Monetary Policy Will Continue for Years

The Federal Reserve held the federal funds rate at the current 0% to 0.25% range and said it intends to keep its benchmark rate near zero through 2022 as the central bank continues to deploy policy tools to underwrite an emerging recovery for the U.S. economy from the COVID-19 pandemic.

Specifically, the Fed noted that it will continue its quantitative easing policy, purchasing on a monthly basis $80 billion in Treasuries and $40 billion in mortgage-backed securities, which is helping to support low mortgage interest rates and housing demand. Home building, and housing in general, will be a leading element of the recovery, as foreshadowed by two months of gains for mortgage applications and better than expected newly-built home sales.

The Fed is projecting a 6.5% decline for GDP for 2020 (NAHB is forecasting a 6.2% drop) due to government-mandated virus mitigation efforts that led to a sharp, sudden stop in economic activity. Like other outlooks, the nation’s central bank is forecasting a strong bounce back in 2021, with growth for that year coming in at a 5% rate.

The fact that the Fed indicated it expects to keep the federal funds rate near zero for the next two years is broadly positive for home building and housing markets. The Fed’s messaging is clear: it will do whatever it takes to return labor markets and the economy to where they were prior to the outbreak of the pandemic. In particular, the Fed is making sure that credit is available for households and businesses to ensure the smooth operation of markets. Housing and home building are important elements for the transmission of monetary policy and will thus feature as front-line sectors during a recovery.

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The team at Parker Associates and PTC Computer Solutions follows the latest news and information in the industry so that we can stay on top of the changes that will affect your industry. There are many factors that are reliant on the economy and what is happening in the market both locally and globally. This affects the consumer market and the positioning. We have a time tested method of success in helping businesses with marketing and product positioning.

Parker Associates bases product positioning on specific consumer preferences from current surveys and focus groups published by industry periodicals and reports, or direct consumer interaction designed and carried out by Parker Associates experts and contractors. Along with the tremendous support of PTC Computer Solutions and their team of experts in handling research and data, we are sure about our results. It is too important for guesswork or client opinions. Give us a call at 904-992-9888 or email us at info@parkerassociates.com if your prefer. We are always at the ready.

David WB Parker is a principal of Parker Associates of Jacksonville, Florida, marketing consultants to the real estate industry; President of PTC Computer Solutions, IT Specialist, and an active real estate sales professional with Barclay’s Real Estate Group based in Jacksonville, FL.  He is also a principal partner of the REMA Team of professionals. He can be reached at 904-607-8763 or via email davidp@ptccomputersolutions.com.

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