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Low Mortgage Rates Heat Up Market, Raise Future Mobility Concerns

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Low Mortgage Rates Heat Up Market, Raise Future Mobility Concerns


May 26, 2020
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By Aldeca Productions

On May 21st, the interest rate on a 30-year home loan was 3.24 percent—a full percentage point lower than the same time in 2019, according to Freddie Mac. Now that demand is heating up, economists forecast that the low interest rates combined with pent-up demand will bolster sales for the rest of the year. After months of slow purchasing activity, any increase is welcome. However, Forbes reports that such low interest rates may have a downside: Buyers that lock in these low rates will have less incentive to move later on and shoulder higher monthly mortgage payments, leading to less mobility.

In a coronavirus-created environment of severe inventory shortages and rising prices, home shoppers do have one advantage in the form of extremely low interest rates. Yet, while propitious today, the latter bear repercussions for the U.S. housing market for years to come.

According to mortgage buyer Freddie Mac, the interest rate on a 30-year home loan was 3.24% on Thursday, about a whole percentage point lower than a year ago. Even before the Covid-19 pandemic, rates have been sliding in response to market forces and Federal Reserve policies, previously aimed at keeping the U.S. economy chugging during its longest expansionary period.  

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