Young people around the country have been hearing it for weeks.
“One upside to all this market volatility: mortgage rates dropping.”
“A home buying opportunity.”
“There is positive news. Low interest rates are an opportunity.”
But the Federal Reserve’s effort to curb the economic fallout from the coronavirus pandemic and cut interest rates is actually not the best move for millennial home buyers.
“If we didn’t have the recession coming — and in a world where the only thing moving was the interest rates — then surely, that would be very beneficial to millennials trying to become first-time homebuyers, which is going to be critical for the long-term growth trajectory of the U.S. economy,” said Danielle DiMartino Booth, CEO of Quill Intelligence and former advisor at the Dallas Fed.
The low interest rates have led some people to claim this will help millennials, who have a low homeownership rate.
“The lower rates can help give them a little bit more purchasing power as they face competition. It will also mean that more homes are going to be within their monthly budget,” said Taylor Marr, senior economist at RedFin.
But there are other factors to consider, too, like student debt and stagnant wages. Housing experts say falling rates alone won’t be enough to pull millennials off the sidelines.
“Homes are expensive relative to income still. So even though a little bit more purchasing power is coming for lower monthly budgets, housing is still very expensive, especially for the starter homes in the market where there’s not much inventory available,” Marr said.
The challenges don’t stop there, either. The coronavirus pandemic has already caused job losses and a decline in business activity — making lower rates less effective.
While they’re typically seen as a way to help sectors that are sensitive to them, like housing and autos, some experts say the recent rate cuts were intended for other reasons.
“In this particular instance, it was much more of the Fed’s role that they play in making sure that there’s financial stability,” DiMartino Booth said.
