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A Return to Super-Low Mortgage Rates Unlikely, Says Chief Economist
The Anomaly of 3% Mortgage Rates
Lawrence Yun, Chief Economist at the National Association of Realtors, believes that the era of super-low mortgage rates is over and unlikely to return in the foreseeable future. The period of 3% interest rates for 30-year fixed mortgages, which lasted from July 2020 to November 2022, was an anomaly caused by the pandemic. historically, mortgage rates have averaged around 7% over the past 50 years according to Freddie Mac data.
The Pandemic and Mortgage Rates
During the pandemic, the Federal Reserve took measures to stimulate growth in the face of economic uncertainty. They slashed interest rates, engaged in quantitative easing, and implemented emergency lending programs. As a result, mortgage rates reached a rock bottom of 2.67% in January 2021. However, the fast recovery of the economy led to inflation, and the Fed had to start increasing interest rates, causing mortgage rates to rise as well.
No Return to Record-Low Mortgage Rates
Due to inflation and current federal spending deficits, Lawrence Yun doesn't believe the Fed will lower interest rates to nearly 0% again, even in the event of another financial market panic or pandemic. Other economists also share this sentiment, stating that the low mortgage rates in 2020 were a result of unique circumstances and are unlikely to be replicated. The current average mortgage rate for a 30-year fixed-rate mortgage is 6.81% as of July 6, and while projections suggest a steady decline in the next year, a return to super-low mortgage rates is highly unlikely in the near future.
Conclusion: The Impact on New Businesses
For new businesses, the outlook on super-low mortgage rates is not favorable. The insights offered by Chief Economist Lawrence Yun make it clear that the era of historically low mortgage rates, particularly the anomaly of 3% rates experienced during the pandemic, is unlikely to return in the foreseeable future. This has significant implications for entrepreneurs and startups looking to secure financing for their ventures.
During the pandemic, the Federal Reserve implemented measures to stimulate economic growth, which led to rock-bottom interest rates on mortgages. However, as the economy began to recover and inflation set in, the Fed had to raise interest rates, resulting in an increase in mortgage rates as well.
Looking ahead, Lawrence Yun and other economists believe that the current trend of rising rates will continue due to inflation and federal spending deficits. The current average mortgage rate for a 30-year fixed-rate mortgage is around 6.81%, and while projections suggest a gradual decline, it is unlikely to reach the record lows seen during the pandemic.
This higher interest rate environment means that new businesses may face increased costs when seeking funding for real estate or property acquisitions. The cost of borrowing will be higher, potentially impacting the feasibility and profitability of their ventures. Entrepreneurs will need to carefully consider and plan for these higher rates when creating their business models and financial projections.
Overall, new businesses should be prepared for a more challenging borrowing environment with higher mortgage rates. It may be necessary to explore alternative financing options, such as seeking private investors or venture capital, to mitigate the impact of rising interest rates. Adaptability and a keen understanding of the current market conditions will be essential for new businesses to thrive in this environment.Article First Published at: https://www.cnbc.com/2023/07/11/real-estate-expert-mortgage-rates-wont-go-back-down-to-3-percent.html