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Record-low US mortgage rates ignite housing rebound

Still, the rally faces challenges from persistent job losses and an inventory shortage that is pushing up prices

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The lower borrowing costs have led to a flood of applications for refinancing and new purchase loans, particularly as Americans look for more space for home offices and remote learning.

Washington

MORTGAGE rates in the US dropped to another record low, adding fuel to a housing market that has been a key source of strength for the pandemic-hit economy.

The average for a 30-year, fixed loan was 2.86 per cent, down from 2.93 per cent last week and the lowest in almost 50 years of data-keeping by mortgage-financing company Freddie Mac.

It was the ninth time since the novel coronavirus started roiling financial markets that rates fell to a new low.

The previous record, 2.88 per cent, was reached in early August.

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Cheap mortgages have ignited a housing rebound, driving sales of both new and existing homes and putting money back into the pockets of borrowers who have been able to refinance.

Still, the rally faces challenges from persistent job losses and an inventory shortage that is pushing up prices, reducing the pool of people who can afford to buy a house.

"Heading into the fall, it will be difficult to sustain the growth momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity," Sam Khater, Freddie Mac's chief economist, said in a statement.

Mortgage rates dipped below 3 per cent for the first time in July and have continued sliding as the US Federal Reserve keeps its benchmark rate near zero.

Based on the yield for 10-year Treasuries, which typically guides mortgage rates, borrowing costs could continue sliding, said Tendayi Kapfidze, the chief economist at LendingTree.

"If the spread narrows to where it was before Covid-19, it can go as low as 2.3 per cent," he said.

The lower borrowing costs have led to a flood of applications for refinancing and new purchase loans, particularly as Americans look for more space for home offices and remote learning.

More than 19 million homeowners - the largest population ever - are still likely to benefit from refinancing, because they have good credit, at least 20 per cent equity in their homes and can cut their rates by at least 0.75 per cent, said Black Knight.

The average savings would be US$299 a month, the industry tracking firm reported on Thursday.

There was pent-up demand for housing when the pandemic hit, with millennials ageing into home-ownership. But with some sellers reluctant to release homes on the market, inventory has been tight.

That has helped prop up homebuilders, who saw their shares hammered when the coronavirus shut down the US economy.

An index that tracks the industry has gained nearly 150 per cent since the stock market hit a bottom on March 23 and is trading close to a record high.

The question is if the housing boom can continue amid the economic fallout from the pandemic.

Some potential buyers, eager to take advantage of low rates, might not get approved for loans, while higher prices are exacerbating the shortage of affordable housing.

Higher home prices are starting to erode the benefits of cheaper mortgages, said George Ratiu, a senior economist at Realtor.com.

"For many young, first-time buyers, the shift is reducing affordability, just as they are ready to embrace home-ownership," he said. BLOOMBERG

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