Home Loan Interest Rates Likely to Stay Low Longer?

The Federal Reserve once again decided not to raise the federal funds rate this month, saying the economy is still falling short of benchmarks. That likely means home buyers will be able to take advantage of lower mortgage rate for awhile longer too.

Federal Open Markets Committee members released a statement Wednesday that said in an effort to “support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current zero to one-quarter percentage target rate for the federal funds rate remains appropriate.”

The FOMC will not decide on a rate hike again until its next meeting in December. At that time, the FOMC says it will assess progress with labor conditions as well as inflation pressures and expectations in deciding whether to raise rates at that time.

Jonathan Smoke, realtor.com®’s chief economist, predicted earlier this week. “That decline was likely a result of the stock market declines in August and September,” he said. “If builders are not focusing on first-time buyers, they are focusing on the segments most likely to be disrupted by declines in stock portfolios and retirement plans.”

Source: “Fed Again Delays Interest Rate Hike,” HousingWire (Oct. 28, 2015) and “Fed Keeps Interest Rates at Record Lows,” The Associated Press (Oct. 28, 2015)

Rising Home Prices Squeeze Out Young Buyers

“One can say that we are having a nationwide housing cost problem,” says Lawrence Yun, the chief economist for the National Association of REALTORS®, in a new interview with The Huffington Post. Housing’s affordability problem remains a barrier particularly for first-time buyers wanting to enter the market.

Indeed, the latest existing home sales report shows that the share of first-time home buyers was 28 percent in July, down from 30 percent in June.

The lack of available housing is one cause of these booming prices, with current home building activity at only half of the normal level.

In the recent REALTORS® Confidence Index Survey, REALTORS® report that homes are increasingly becoming unaffordable and that sellers are reluctant to move because they can’t find affordable homes.

Sources: “Real Estate Has Become Unaffordable,” The Huffington Post (Sept. 9, 2015) and “Sales to First-Time Buyers: 28 Percent of Sales in July 2015,” Economist Outlook blog (Sep. 9, 2015)

Why Home Renters May Be in Trouble

The gap between rental costs and household income is widening to unsustainable levels across the country. As more renters face steeper costs, it may put them even further away from home ownership, according to the National Association of REALTORS®. NAR evaluated income growth, housing costs, and changes in share of renter and owner-occupied households over the past five years in metropolitan statistical areas.

Over the last five years, a typical rent rose 15 percent, while the income of renters grew by only 11 percent, according to research in a new study just released.

“Current renters seeking relief and looking to buy are facing the same dilemma: Home prices are rising much faster than their incomes,” says Lawrence Yun, NAR’s chief economist.  “With rents taking up a larger chunk of household incomes, it’s difficult for first-time buyers – especially in high-cost areas – to save for an adequate down payment.”

“The result has been an unequal distribution of wealth as renters continue to feel the pinch of increasing housing costs every year,” according to NAR’s study.

Source: National Association of REALTORS®