Monday, December 14, 2020 / by Vanessa Saunders
By Vanessa Saunders, MBA, MIMC , Broker Owner, Global Property Systems Real Estate.
On the day Pfizer’s approved Covid-19 vaccine hits it’s first American arm, it seems like a good idea to consider what this historic moment’s effect on real estate may be. When the virus reached the United States earlier this year, people were worried that it could devastate the country’s real estate market. For a while, as people got used to using PPEs and stayed home to avoid getting sick, things ground to a halt. But a few months later, people were scrambling to buy a home. Buyers flooded the housing market.
Now that the end of the pandemic seems to be in sight, the news has improved the industry's' spirits yet again. While the end of the pandemic won’t instantly generate a glut of homes on the market to relieve the inventory gap, it should have a significant effect on mortgage rates.
Economists agree that forecasting mortgage rates has been an economist’s fool’s errand for years. At the start of the pandemic, most economists and mortgage industry experts didn’t expect rates to drop below 3%, but that’s just what happened. In the near-term, mortgage rates are likely to stay low — though they may rise above the record lows they have hit in recent weeks. That’s because the Federal Reserve has indicated that it doesn’t plan to hike rates soon.
Over time, however, as people go back to doing what they used to do - shopping, eating out, taking vacations and all the other activities that stimulate the economy, that improvement will be reflected in higher yields on Treasury notes and other long-term bonds, which would in turn give a bump to mortgage rates.
Home-buying activity should remain elevated despite higher mortgage rates. Rising interest rates likely will create affordability concerns for some prospective home-buyers, given that home-price appreciation has picked up in pace in recent months. But that shouldn’t stop the housing market’s momentum, as better employment prospects could lead to more home sales in 2021
If you’re considering purchasing your first home or moving up to the one you’ve always hoped for, it’s important to understand how interest rates play into the overall cost of your home. With that in mind, buying while mortgages are as cheap they are now may save you quite a bit of money over the life of your home loan.
Also keep in mind difference between a 3% mortgage rate and a rate one point higher is. A $250,000 thirty-year fixed rate mortgage at 3% will cost you $200,500 in interest over the life of the loan. The same mortgage at 4%, just one percent more, will cost you $249,210 in interest.