Federal Reserve plans to keep rates near zero until 2023
Here’s a look at the latest developments in the mortgage market for the week beginning 9/21/20.
- Federal Reserve will keep interest rates near zero until 2023
- Surging home demand drives homebuilder confidence to all-time high
- Digital mortgage platforms found to reduce discrimination in lending
- Remote work could add almost 2 million potential buyers to the market
- What to look for when comparing mortgage rates
- Better.com is Linkedin’s No.1 Startup of 2020
Federal Reserve will keep interest rates near zero until 2023
Last week members of the Federal Reserve Open Market Committee (FOMC) released a new policy statement indicating their willingness to use the many tools at their disposal to support the nation’s economic recovery. Their focus included maintaining their benchmark rate at 0-.25% for at least three years and continuing to buy U.S. Treasury bonds and Mortgage Backed Securities (MBS) — both of which will support low interest rates and spur lending. While the benchmark rate is headline grabbing, it generally doesn’t affect mortgage rates. The buying of MBS, however, has the clear goal of attempting to keep mortgage rates low.
Though the move indicates a need for ongoing economic support, the Federal Reserve believes that the economy will recover much faster than originally anticipated. The nation’s unemployment rate which is now at 8.4% is now expected to drop to 7.6% by the end of year, before ultimately reaching 4% in 2023.
According to Federal Reserve Chair Jerome H. Powell, the path to recovery relies heavily on effective COVID-19 containment measures and financial support from all levels of government. In the meantime, the Federal Reserve will continue to use all of its resources to boost the economy for the foreseeable future.
Surging home demand drives homebuilder confidence to all-time high
Despite uncertainty in the nation’s economic recovery, the housing market is rebounding and flourishing. The median home price increased 13% from 2019 to $319,261, while pending home sales were up 27% compared to the same time last year. These indicators point to a great deal of pent-up demand chasing a small amount of inventory. As a result, the National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI) rose by five points to 83, beating the previous record of 78 reached last month. The index measures builder confidence in the market for newly built single-family homes and sales expectations for the next six months on scale from zero to 100.
While a delay remains between homebuilding and new inventory, home values may continue to appreciate, especially in areas outside major metros where millennials are moving.
Digital mortgage platforms found to reduce discrimination in lending
The traditional mortgage process has always been fraught with hurdles, and for those who don’t fit the stereotypical homeownership mold—white, married, heterosexual—the obstacles have been proven to be far greater. In 2019 alone, prospective African-American and Hispanic homebuyers were denied mortgages at 16% and 11.6% respectively, compared to only 7% of white Americans. Within the LGBTQ community, one study found that couples were 73% more likely to be denied a mortgage than heterosexual couples with comparable financial credentials.
There is a clear need to democratize the mortgage industry, and online mortgage lenders are offering a shift in the right direction. By allowing prospective homebuyers to upload their financial information, get a letter of approval, and search for interest rates without an in-person meeting, these digital platforms can effectively bypass human bias. In fact, algorithms were found to discriminate 40% less on average than in-person lenders.
Trends like these are one of the reasons that Better Mortgage remains committed to technological innovation and fair lending practices. We have long believed that such measures are a crucial part of our mission to make homeownership accessible for all.
Remote work could add almost 2 million potential buyers to the market
Almost 2 million renters may now be able to become homeowners as more companies introduce work-from-home policies nationwide according to a Zillow analysis. Renter households that have the ability to work remotely, but can’t afford entry-level homes in their current metro areas, could potentially buy starter homes in less expensive markets.
For example, almost a quarter million renters in the San Francisco and San Jose metro areas alone would have the means to own homes in other locales if telecommuting was an option. For prospective buyers interested in making a move, Zillow identified Pittsburgh, El Paso, and Rochester as the three most affordable places to buy a starter home.
What to look for when comparing mortgage rates
Rate tables are one of the most important mortgage comparison tools available to borrowers during their search for home financing. Typically found on a lender or mortgage rate comparison website, a rate table provides key information about a lender’s mortgage products, rates, and estimated monthly payments for a home. Our team of experts put together a guide to demystify rate tables and what to look for when comparing mortgage rates.
Better.com is LinkedIn’s No.1 Startup of 2020
LinkedIn just released its annual list of 50 Top Startups, and Better.com took first place. Recipients were judged on employee growth, job seeker interest, member engagement with the company and its employees, and ability to attract top talent.
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