Summer is just around the corner and with it the height of the real estate selling season, a season which this year will be helped in large measure by unusually low mortgage rates.
According to the National Association of Realtors, existing home values increased in February, the latest month for which we have data. The fact that home prices rose is not surprising, NAR says February represents the 48th consecutive month of year-over-year gains.
It’s not just a coincidence that home values have tracked upward since 2012. This is the very same time we have been in a period of historically low mortgage rates, a situation which seems likely to continue.
In 2013, Standard & Poors reported that mortgage rates during the past 40 years had averaged 8.6 percent, more than twice today’s real estate interest levels.
According to Freddie Mac, average annual mortgage rates for the past few years have looked like this:
- 2012 – 3.66 percent – the lowest annual mortgage rate average in 65 years
- 2013 – 3.98 percent
- 2014 – 4.17 percent
- 2015 – 3.85 percent
These rates are less than half the historic norms seen during the past four decades. Not only that, rates in in mid-April were down to 3.58 percent for 30-year, prime, fixed-rate mortgages according to Freddie Mac.
As we head into the summer selling season, we continue to see mortgage rates which are near historic lows. In such a rate environment, many people surely have reason to finance and refinance, and yet home ownership levels are down. The most recent data shows that home ownership levels in October 2015 were the same as October 1966.
Can Low Mortgage Rates Boost Home Ownership?
There’s no single answer, but I would make this argument: The good news regarding mortgage rates has been drowned out by the attention given to the Federal Reserve’s efforts to raise interest rates in general.
It’s true that the Fed would like see a 2 percent inflation rate and with it higher interest levels for banks, however, such efforts have stalled for several reasons.
First, the Fed directly impacts banks but it does not set mortgage rates. And, obviously, it’s influence in the mortgage world is limited if not marginal. The proof? The Fed raised the Federal Funds target rate by .25 percent in December and since then mortgage rates have tumbled. Rates for 30-year, fixed, prime mortgages were at 3.95 percent at the time of the Fed announcement and as of this writing are down to 3.58 percent.
Second, even with today’s low rates, the nation’s banks have plenty to lend. In March, the banking system held $2.3 trillion in excess reserves. It is this massive pile of unused cash which helps hold down today’s low mortgage rates, low rates which can only help the summer selling season.