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The latest Freddie Mac PMMS Survey has 30-Year mortgage rates at 2.99%. Lenders are quoting mortgage rates lower than that. “Consumers are taking advantage of record-low mortgage rates resulting from the Federal Reserve’s maximum liquidity monetary policy” mentions Lawrence Yun, Chief Economist of the National Association of Realtors. As we’ve talked about at length over the previous two months, this is due to the unprecedented stimulus being provided by the Fed. It is helping stimulate not only the mortgage and real estate market, but the economy in general. Mortgage rates will probably stay low for the foreseeable future with this stimulus due to rising Covid-19 cases and negative economic signals. One example of these bad omens for the economy is the U.S. Gross Domestic Product falling at an annualized rate of 33% in 2nd Quarter 2020. This is the largest drop in over 70 years.
As for home sales, having rates near historic lows is driving purchase demand over 20% above a year ago according to Sam Khater, Freddie Mac’s Chief Economist. Real estate is one of the bright spots in the economy, with strong demand and a modest slowdown in home prices. New home sales have risen for the 3rd straight month, at a seasonally adjusted annual rate of 776k units. This is a 13.8% increase over the prior month and a 13 year high. Pending home sales also rose again with the National Association of Realtors’® Pending Home Sales Index, rising 16.6% from the prior month.
Home prices have also been rising steadily. According to the June 2020 Monthly New Residential Sales Report, the median price of a home sold in June was $329,200 compared to $311,800 just a year prior. With that said, affordability for these homes continues to be an issue. The National Association of Home Builders (NAHB) Housing Trends Report for the second quarter of 2020 found slightly less than 25% of prospective homebuyers could afford a median-priced home in their local markets.
It has been worse though. Last year, only around 20% could afford these homes. Still-available homes for sales, especially on the starter level, continue to be on short supply. Consumers continue to look in the suburbs for a home purchase to keep away from the densely populated metropolitan areas.