Fed Says Near-zero Rate May Last Years

Victoria and Dave Ranck
Victoria and Dave Ranck
Published on September 21, 2020

As reported in the USA Today article by Paul Davidson, the Federal Reserve said Wednesday that it is planning to keep the interest rate near zero until the economy shows full employment and there is a moderate level of inflation for “some time”. This sparked economists to say that rates will likely remain at rock-bottom for 4 to 5 years.

“These are powerful commitments that we think will support the full recovery as long s it takes,” Federal Reserve Chairman Jerome Powell said at a news conference according tot he article in USA Today.

The Fed now predicts the economy will contract by 3.7% this year, below its 6.5% estimate in June, and the 8.4% unemployment rate will fall to 7.6% by year-end.

How Will This Affect the Real Estate Market?

If mortgage rates remain low for the next few years this is good news for home buyers. The current low rates have been a strong impetus to the rapid recovery of the housing market since states have relaxed stay-at-home mandate. Buyers have been able to save many thousands of dollars over the life of a home loan and have been able to purchase more home for the same monthly payment.

Homes have been selling quickly in Sarasota, often within days or even hours of listing. We are experiencing a strong seller’s market and with a influx of buyers from northern states, this summer has felt more like “season”. If the rates remain low, we should see homes sales continue their course for some time until an equilibrium of supply and demand is reached. If a larger number of homes are listed this fall and winter, the rapid pave of sales will likely cool off a bit.

This past week in the Sarasota area there were 366 new listings and 577 homes put under contract. This indicates a significant deficit of inventory and continues the trend we’ve seen over the last several weeks.

What Does This Mean to Me?

If you are a buyer wanting to take advantage of the low rates, you need to move quickly. Make sure you are pre-approved by your lender. When you find the right home, act fast and make a strong offer up front. You need to make an offer that will rise to the top in a multiple offer situation. And price is only one factor that makes an offer “strong”.

If you are a seller or thinking about selling your home, now is a very good time to enter the market. But I caution you against thinking this current market is like the housing market of 2006! Homes stull must be priced properly and have features and condition commensurate with the asking price. Buyers are not over-paying for homes. And even with the Fed’s new announcement, I would be cautious about depending on this market to remain the same for a long time. There are other factors aside from mortgage rates at play.

So is this the right tome for you to buy or sell? I can’t answer that question without knowing your particular situation and goals. It is a good time for many buyers and sellers.

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