In mid-March, borrowing rates were slashed to banks to nearly zero percent and announced it would buy at least $700 billion in government bond purchases, channeling about $200 billion of the stimulus into mortgage-related bonds. Not since 2008 has the central bank made such a dramatic move to stave off the effects of a pandemic economic recession.
What does that mean to home buyers like you? Opportunity.
The Fed doesn’t set mortgage interest rates, but it does influence short-term borrowing and adjustable mortgage rates because banks follow the federal funds rate. Fixed rate mortgages tend to move with long-term Treasury yields, according to Bankrate.com. As more investors pile into Treasury bonds, the yield lowers, which means fixed rate mortgages will cost less.
According to Reuters, mortgage interest rates should remain low for some time. For example, the monthly payment on a $350,000 home purchased with a 20% down at 4% interest would be about $1,850. At 3%, the same payment would be about $1,700, allowing borrowers to buy homes more affordably.
The National Association of REALTORS® recently reported that only three percent of home sellers took their homes off the market in March in response to the coronavirus quarantines, which means there will be plenty of homes to choose.
Economic uncertainty typically causes home buyers to move to the sidelines, which can cause inventories to grow and housing prices to fall as well. The time to act is now while the costs of buying a home are dipping.