Low Interest Rates Leading To Booming Housing Market

August 27, 2020

A couple of blocks from my house in Chatsworth — a suburb in Los Angeles’ San Fernando Valley — a single-family home recently sold for $30,000 above the asking price. The previous owners told me they received more than 20 offers on the first day of listing and the winning buyer paid all cash.

“I have to be honest, I’m surprised,” I said to one of the owners. “I thought the real estate market would be down right now because of the economy and job losses. You know, coronavirus and all.”

Not so, the owner replied.

“The mortgage rates are really low,” she said. “Right now, money is cheap.”

Indeed, it is. And it’s setting existing home sales records.

According to the National Assn. of Realtors (NAR), sales of existing homes in the U.S. rose 24.7% in July compared to June, representing the strongest monthly gain in the history of the survey—which goes back to 1968—and the highest sales pace since December 2006. Sales were also 8.7% higher year-over-year.

And a big reason for these gains, according to the NAR, are low interest rates, as they give buyers more purchasing power. While mortgage rates spiked briefly at the start of June, they then fell back quickly. The average rate on a 30-year fixed mortgage hovered just above 3% for most of June before then falling below that in July. 

“The new listings are running a little higher than one year ago but all those new listings are being grabbed by the buyers and taken off the market,” said Lawrence Yun, the NAR’s chief economist. “I think there is a big societal change concerning housing decisions today. The upper income bracket has been more stable in terms of jobs, and they are taking advantage of record low mortgage rates.”

While a booming housing market is good for the overall health of the economy, the continued impact of the coronavirus pandemic shows cause for concern, said Danielle Hale, chief economist for Realtor.com.

“Continued healing in the housing market is a positive for the overall economy, but elevated jobless claims raise concerns about how sustainable this housing demand is, especially in the face of rising prices,” Hale said.

For now, though, the market is booming. Buyers are getting low rates and sellers are getting multiple offers above asking. In the short term, at least, it’s win-win for both sides.

Nevin Barich is the Consumer Products Analyst for Industry Intelligence, which can help YOU better address your own industry challenges. We invite you to come take a look at our service. Call us today at 310-553-0008 and we’ll schedule you for a 15-minute demo.

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