Mortgage rates dropped to an all-time low a day after the announcement.
While the coronavirus (COVID-19) is still at large, various states in the U.S. are turning towards the reopening process. It is one of the biggest experiments in modern history, with various departments and health experts monitoring the outcome with everything they have.
But during this time, the Federal Reserve Board made it clear that it has no plans to declare business as usual. The indication came through Fed’s recent decision to hold its near-zero interest rates in place, which had first been unveiled on March 15, 2020.
The Fed Rate Cut is Likely to Stay Until 2022
The Fed’s announcement detailed that the agency intends to keep its rates within the target range of 0% to 0.25%. During the live press conference held last Wednesday, June 10, Fed Chairman Jerome Powell also stated that the agency is “not even thinking about raising rates.”
The announcement to keep the current rates in place and the language used by the Fed Chair came with another projection: the Fed may just keep these lowered rates in place until 2022.
Another development that contributes to this estimate is how the Fed’s current decision was passed unanimously, soon after the U.S. faced record unemployment rates in the past couple of months. While 2.5 million of lost jobs were added back to the economy last week, the agency projected that the economy needs more support and time before it can go back to a pre-pandemic state.
Mortgage Rates Had Been Largely Unaffected Until Recently
After the COVID-19 outbreak, the Fed rate cut effect on mortgage prices did not hold as much as the general public thought it would.
As compared to February 2020, when the monthly rate for 30-year fixed mortgage stood at 3.47%, the month of May recorded a rate of 3.23%. It was a noticeable drop, but still not as significant as many had been hoping for it to be.
However, the recent news of Fed’s action has definitely had an effect on the market. On Thursday, June 11, the 30-year fixed mortgage rate dropped to 2.97% for the first time ever. The change came as an unexpected development after the mortgage rates held their own for a long time, and seemed to stay consistent through market movements during the pandemic.
This Fuels a Heightened Period of Activity
Even through these developments, the Fed’s projection to maintain near-zero rates for at least two more years seems inevitable. In the midst of a challenging economy, an ongoing pandemic, and civil unrest, the lowered rates may just be the added support that the market needs to stay afloat.
In either case, this Fed rate cut indicates a great time for potential homebuyers to invest in their dream home. According to historical data, the housing market is set for a significant comeback after the COVID-19 pandemic is over. If there was ever a time to close on the listing you wanted and benefit from lowered rates, this would be it.