[Maurice Williams / Unsplash]

Now Is a Good Time to Buy a House: Mortgage Rates at an All-Time Low

11:53 May 18, 2020
By: John Glover

Effects never cut just one way with the economy. According to the social laws of thermodynamics, so to speak, every phenomenon causes a paradoxical reaction. In economist speak, this tendency is called a trade-off. As in: A global pandemic sends markets into a tailspin, and people start purchasing houses at fire-sale prices.

An article in CNBC last weekend reports on the latest mortgage rates. They have apparently hit a record low. A fixed interest rate on a 30-year loan, a typical time frame for mortgages, is now about three percent.

The precise numbers vary, depending on the borrower's financial profile. The client with a more desirable credit score and so on, of course, receives a lower rate. On the flip side, the person whom banks deem risky might have even more difficulty than normal because of the uncertain financial climate.

Several factors are contributing to this trend. During a recession, government-backed bonds with their low yields but relative safety become more attractive. As a result, capital flies from speculative venues like the real estate sector.

As people find themselves strapped for cash because of income dips, Uncle Sam has stepped in to pick up a measure of the slack. The government and private sector actors offer so-called "mortgage forbearance plans." The policy creates a grace period during which payments can be delayed for as long as a year without risk of foreclosure. Approximately 4.7 million people have taken the option so far, mostly through the public alternative.

Another cause could have to do with coronavirus fears. People are more reluctant now to move to more dense population centers—cities like New Orleans. Under usual circumstances, demand would be highest in these places, but right now, the market is as dry as a bone.

Ultimately, the lenders take their cues from the central bank, or the Federal Reserve. Traditionally, the Fed takes the Keynesian measure of lowering interest rates in order to combat unemployment during economic crises.

The current moment will surely be remembered as a retrograde time of stagnation and shrinkage. It's an ironic twist, considering defaults in mortgage-backed securities precipitated this country's previous financial meltdown. At the moment, the housing sector is looking like a happy anomaly on the radar.

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