A Break for the Weakened Housing Market

Mortgage rates are on the way down, which should boost affordability and home building starts.

The long-suffering housing market may be getting a break, thanks to lower mortgage rates.

High interest rates for home loans have been one of the reasons that buying residential real estate has been unaffordable for too many Americans. But recently, the rate for a 30-year fixed loan has dipped to 3.8%, down from 4.87% last November.

That’s the result of a trend toward lower rates: The 30-year Treasury and the 10-year Treasury—which affect the 30-year and 15-year mortgage market—have gone down among strong demand for the safety of long-term US government bonds. At the same time, the Federal Reserve is expected to cut short-term rates, which impact adjustable-rate mortgages. 

So expect a turnaround in housing starts, states Joseph Lavorgna, Nataxis’ chief economist, Americas, in a research note. Last month, housing permits fell 6.1% to only 1.22 million units. “Residential construction has been one of the softest pockets of the economy, but should benefit over time from falling interest rates,” he wrote.

When mortgage rates surged a full percentage point from late 2017 to late 2018, monthly starts slid to 1.2 million from 1.4 million.

People’s houses are far and away their biggest asset, and the dream of home ownership, while diminished lately due to costs, never has gone away.

Of course, other factors affect housing, such as consumers’ disposable incomes and credit ratings, which need to be high enough for them to afford purchasing a dwelling. And the White House is acutely aware that a sluggish housing market will be an obstacle for President Donald Trump’s reelection plans next year.

That’s likely why the administration has been in no hurry to end the decade-long federal conservatorship of Fannie Mae and Freddie Mac, which buy mortgages and help keep home lending going. If a rocky transition for Fannie and Freddie messed up the housing market, that would be a big minus for Trump.

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