The COVID-economy has contributed to our low mortgage rates. I had a client who just got prequalified for a sub 3% rate. We are actively looking for his first home.
Due to a lot of economic uncertainty, will mortgage rates eventually fall to 0%?
Len Kiefer, deputy chief economist for Freddie Mac, Tweeted, "Following the Great Recession, mortgage interest rates fell 4 out of the next 5 years, falling a total of about 3 percentage points. Are we going to have a 0% 30-year fixed mortgage rate in 2024?"
Near 0% mortgage rates are actually occurring in Denmark and Finland.
Mortgage liquidity plays a role in our mortgage rates. Fannie Mae and Freddie Mac buy mortgage loans from lenders. These government sponsored entities then bundle mortgages and sell them on the open market on Wall Street as mortgage backed securities. Investors then buy the mortgage back securities.
The role of the investor can influence mortgage rates. However, what happens if investors are not buying bonds? Investors might be cautious due to our economic environment and to the low yields.
In that case, the Federal Government can step in and buy the mortgages bonds. This will increase liquidity so lenders can keep lending. The low rates could entice buyers; this could drive up housing prices.
This is the real estate circle of life. It will be interesting to see how things play out.