U.S. 30-year mortgage rates kept falling this week, hitting a new record low for the 16th time this year. According to Freddie Mac, “the 30-year fixed-rate mortgage (FRM) averaged 2.66 percent, the lowest rate in the survey’s history which dates back to 1971.” A year ago, it stood at 3.74 percent.
After exceeding 18 percent in late 1981, U.S. 30-year mortgage rates have steadily declined and have been consistently below 4 percent since June 2019. As I already discussed, the sharp drop in borrowing costs has supported the housing industry boosting both transactions and prices. In this context, I expect the S&P CoreLogic Case-Shiller Home Price Index (20-City) to increase by more than 7% YoY in October.
In addition, on the supply side, the latest NAR report highlighted that available inventory declined 22% YoY to 1.28 million units in November (the lowest in data back to 1982). As a result, home price indexes are likely to rise even faster in both November and December despite virus resurgence.
Even though U.S. policymakers want to keep interest rates low until at least 2023 and didn’t specify when they want to slowdown Fed asset purchases (of both treasuries and MBS), a constant spike of housing prices (by more than 10% YoY) could push them to rethink Fed strategy sooner than expected.