The Fed signaled in its September policy meeting that it will the federal fund rate in the 0-0.25 percent rage, with the expectation that rates will remain near zero until 2023.
This decision by the Fed did not come as a surprise as some decisions in the recent past given the impact of the Pandemic and the need to sustain liquidity in financial markets. The language from the Fed indicating a direction until at least 2023 does give investors expectations for the next few years, and was a welcome relief for the real estate industry.
The Fed will continue to buy mortgage-backed securities
The Fed has vowed it will continue to purchase mortgage-backed securities in an effort to ensure that banks keep lending during the downturn.
This additional liquidity has allowed Mortgage companies to continue to lend money during the pandemic, at what has been a record pace for both refinancing and originations.
Mortgage Rates Likely to Remain at Historic Lows
The Fed’s Bond Buying has been instrumental to low mortgage rates. Because of their commitment to continued buying of mortgage-backed securities (number 1), it is likely that mortgage rates will remain at historic lows for the near term. While it not a guarantee, the Fed’s influence on the Bond market has been instrumental, and mortgage rates are most influenced by the bond market.
Existing Homeowners have Low Rates for Home Equity Lines of Credit (HELOC)
Equity has been on the rise thanks to increasing home prices. With increased equity, and the desire for access to affordable financing, many have turned to HELOCs.
The cost of HELOCs are currently affordable and will likely remain low as they tend to adjust fairly quickly to changes in the federal funds rate. Those that have balances on their HELOC will continue to enjoy low interest expenses.
Overall, low rates are a positive for the real estate market. We have already seen the impact of pent up demand from Buyers during the market with record mortgage origination numbers, and reduced time on market coupled with multiple offer scenarios.