One byproduct of Covid-19 that has current and prospective real estate owners interested is the low interest rates. With the central bank looking to keep rates near zero, it’s been a boon for mortgage rates, which could fall even further.
“With coronavirus sending the U.S. into a recession and causing record-high unemployment, the Fed set benchmark interest rates near zero to bolster the economy — leading to a mortgage rates drop,” a Fox Business report noted. “Now homeowners and potential buyers want to know: What’s the mortgage interest rates forecast? Will rates drop further and is it worth waiting to score an even better deal?”
“The mortgage rate trend has been a boon for homeowners and would-be buyers,” the report added. “Current homeowners can potentially benefit by refinancing and may save substantially on their home loans. Anyone considering the purchase of a home could also potentially secure a more affordable loan than ever before. While those homeowners interested in further savings may wish to consider mortgage rate forecasts in making their decisions, many others will find that today’s rates are so low it’s not worth the risk of waiting only to see rates rise.”
So while prospective homeowners and would-be refinancers have an opportunity presenting itself, what does that mean for those on the sidelines? What will rates do as more economies reopen?
“Several major housing authorities projected that mortgage rates would fall below 3% in August and this prediction has already come to fruition,” the report added. “These trends aren’t likely to change any time soon, so many of those same experts believe rates will stay in the sub-3% range throughout the month of August.”
30 Year Mortgage Rate data by YCharts
ETF investors looking at opportunities can check out the FlexShares Disciplined Duration MBS Index Fund (MBSD). MBSD seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the ICE BofA Merrill Lynch® Constrained Duration US Mortgage Backed Securities IndexSM.
The underlying index reflects the performance of a selection of investment-grade U.S. agency residential mortgage backed pass-through securities. The fund generally will invest under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of the underlying index and in “TBA Transactions” that represent securities in the underlying index.
Another opportunity is in global real estate via the Xtrackers International Real Estate ETF (HAUZ), which seeks investment results that correspond generally to the performance of the iSTOXX Developed and Emerging Markets ex USA PK VN Real Estate Index. iSTOXX Developed and Emerging Markets ex USA PK VN Real Estate Index is a free-float capitalization-weighted index that provides exposure to publicly traded real estate securities in countries outside the United States, Pakistan, and Vietnam.
For more market trends, visit ETF Trends.