The housing market may have a long to reach full recovery, but it’s certainly bouncing back from the Great Recession. According to a new report from Freddie Mac, rates for 30-year mortgages have dropped to just 3.32 percent, barely more than the record low dating back to 1971.
As rates remain low, sales of new and previously occupied homes are up from a year ago, and the higher demand has pushed up home prices. Likewise, as builders gain confidence, they are constructing more homes, and rising home prices encourage more people to sell their homes. More selling leads to more buying, as prospective home owners speculate prices may rise further in the future.
Low mortgage rates also motivate more homeowners to refinance their loans. Refinancing often leads to lower mortgage payments, which leaves households with more disposable income. Consumer spending is the largest contributor of economic growth, accounting for about 70 percent of overall economic activity; and, in turn, creates jobs.
“The last few months have brought a spate of favorable news on the U.S. housing market with construction up, more home sales, and home-value growth turning positive,” said Freddie Mac vice president and chief economist Frank Nothaft. “This has been a big change from a year ago, when some analysts worried that the looming ‘shadow inventory’ would keep the housing sector mired in an economic depression. Instead, the housing market is healing, is contributing positively to GDP and is returning to its traditional role of supporting the economic recovery.”
According to the Freddie Mac report, long-term mortgage rates are expected to remain near record lows into the first half of 2013, but will gradually increase thereafter, remaining below 4 percent. Property values will continue to increase, and most US home price indexes will rise between 2 to3 percent next year. Household formation is expected to increase by 1.2 to 1.25 million in 2013; and while the refinance boom will continue, will be decrease compared to 2012 by as much as 15 percent.
Meanwhile, the average rate for a 15-year fixed mortgage—which is proving popular for homeowners hoping to quickly pay off their home—dropped to just 2.66 percent. The low rates are available to borrower with good credit and a 20-percent down payment.
The Federal Reserve, in an effort to stimulate the sluggish US economy, has purchased tens of billions of dollars in mortgage-backed securities each month, hoping to keep long-term interest rates low. On Dec. 12, the Fed announced it would continue the program until the unemployment rate drops below 6.5 percent—a level not expected until 2015.
“Mortgage rates held relatively steady following the November employment report,” Nothaft said. “Although 146,000 jobs were created, above the market consensus forecast of 85,000, revisions
subtracted 49,000 workers over the September and October period. The unemployment rate fell from 7.9 to 7.7 percent. However, in its December 12 monetary policy statement, the Federal Reserve noted that this rate remains elevated and modified the statement to tie any increases to its target rate to the unemployment rate falling below 6.5 percent. The latest Fed central-tendency forecast is for unemployment to be between 7.4 and 7.7 percent in the fourth quarter of 2013 and between 6.8 and 7.3 percent by late 2014.”
