For the first time in history, mortgage rates are at near historic lows as the U.S. job market is operating at full capacity. Since the decision to buy a home typically involves a steady job and the ability to afford monthly mortgage payments, demand to buy a home is currently at an all-time high.
According to the U.S. Bureau of Labor Statistics, the national unemployment rate was 4.3 percent, which meets the definition of full employment. Zillow recently reported that “in March, the national unemployment rate (at the time, 4.5 percent) fell below the Natural Rate of Unemployment (currently 4.7 percent) for the first sustained period since late 2007. When the unemployment rate falls below this level, the labor market is determined to be at full capacity.”
Concurrently, Freddie Mac reported that the average interest rate on a 30-year fixed-rate mortgage was 4 percent. According to Zillow, “Over the past 45 years, 30-year fixed mortgage rates have averaged around 7.8 percent during periods of full employment – almost twice the current prevailing rate.”
A strong job market paired with high levels of home affordability should make reaching your homeownership goals a breeze, right? Unfortunately, home buying demand this strong is making it especially difficult for home sellers and builders to satisfy the needs of so many buyers. A lack of new construction and reluctant sellers are putting a dent in housing inventory.
When demand is high and the labor market has reached full capacity, the Federal Reserve will raise key interest rates – in hopes to push mortgage rates up. This will likely lessen home affordability and can cool down home buying demand. But, this isn’t likely to happen quickly. Zillow reported, “Unlike in years past, these benchmark rates are being raised from historically low levels, and mortgage interest rates themselves likely have plenty of headroom to grow before affordability suffers meaningfully enough to dent demand.”
Home buying demand is not expected to cool down anytime soon. Contact a trusted loan advisor today, who can help your offer standout in this competitive housing market.