Despite reaching all-time high average prices and sales numbers not seen since the height of the 2000s boom, the real estate market still has lots of room to run, experts say.
What’s happening: There have been fears in late 2019 and early this year that price levels had outpaced income growth and turn into unsustainable – but record-low mortgage rates and promises by the Fed to keep U.S. interest rates at zero through at least 2023 have lit a new fire under the market.
“The resilience of the housing market continues as mortgage rates hit another all-time low, giving prospective buyers more purchasing power and strengthening demand,” says Sam Khater, chief economist at Freddie Mac.
That “more purchasing power” part might be surprising, especially as home prices rise and incomes fall. But according to the latest data from title insurer First American, it’s true. Low rates increased the regular buyer’s budget by around $15,000 in July. If rates were to fall to 2.7%, it would bump overall home buying power by $32,000.
But what’s actually driving things is a new “migration” out of major population hubs like New York and San Francisco and into lower-cost suburban areas and smaller, less expensive cities like Phoenix, Salt Lake City, and Las Vegas.
The bottom line: Even though prices have risen, the record-low home loan rates have brought down the monthly bill new buyers will see in many cases,
And that could fall even further if demand starts to wane or as mortgage servicers ramp up hiring, bringing down the spread between mortgage rates and U.S. interest rates,
The good news is, for buyers and homeowners who haven’t yet pulled the trigger, it seems there’s still time to act-and maybe plenty of it. Fannie Mae’s July Housing Forecast predicts rates will remain between 2.8% and 3% through the end of 2021.