After a harrowing year of volatile mortgage rates, 2020 begins with optimistically low rates. At 3.72% on average, mortgage rates are remarkably low – an indicator of confidence for both the housing market and the economy as a whole. Should rates remain low throughout the first quarter of the year, it could lead to a booming housing market. Spring brings with it the highest volume of home purchases – low rates leading into the season could supercharge the market.
In part, home buying season occurs due to a relaxing of holiday stress coupled with a drive to sell before summer vacations begin. The months of April, May, June and July account for 40% of all home sales each year. As such, indicators earlier in the year can impact the health of the season. Low rates and high inventory drove 2019’s spring, creating a buyer’s market that looks ready to persist into 2020.
Last Year in Mortgage Rates
Economic uncertainty and a volatile international situation defined 2019. While creating space for profits, these issues also drove consumer confidence lower. A lack of buyers and a surplus of inventory creates a drop in mortgage rates. 2020’s low rates came from the end-of-year issues including protests across the globe and impeachment proceedings in U.S. politics. It also helps that the Federal Reserve’s interest rate outlook remains steady.
While they may leave major institutions reeling, savvy consumers can play the situation to their advantage. Should the market cycle continue in a healthy fashion, home purchases should vastly outpace 2019. Of course, this will bring higher rates as the year progresses – with earlier buyers reaping the highest rewards.
The Start of a Generational Shift
Beyond normal fluctuations, the housing market will witness the continuing shift from Baby Boomers to Millennial purchasers. Each generation seeks different criteria in their purchases. Further, Millennials are suffering from economic policies that place high burdens on younger workers. Although they are certainly starting to enter the home-buying market, they may trend towards more affordably priced homes.
This could shift dramatically over time, as they inherit the wealth of their Baby Boomer parents. While this should be considered, it is also not a foregone conclusion. Should the wealth shift happen as predicted, it could create an unprecedented buying frenzy as Millennials enter the market in full force.
Article By: Adam Stone