4 Stocks To Buy On Record Low Mortgage Rates

The pandemic-hit economy is slowly getting back on track, with the homebuilding industry gaining strength. A string of factors, which range from record-low mortgage rates to a low-interest-rate environment and more construction activity, are pushing the sector ahead. The current environment, therefore, makes it ideal for aspiring homebuyers to step into the market again.

This is why investors keen on benefiting from these affirmative factors could invest in construction-related stocks.

30-Year Mortgage Hits Fresh Lows

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 3.07% for the week ending Jul 2, much lower than the average rate of 3.75% from the year-ago period. The average of 3.07% is a record new low for the 30-year mortgage rate.

Just two weeks ago, the benchmark 30-year mortgage rate had stooped to its previous record low of 3.13%. In fact, mortgage rates have dropped to historic lows many times so far this year, owing to the pandemic-hit economy.

In addition, the 15-year fixed-rate mortgage also hit an average of 2.56% in the week ending Jul 2 from 2.59% last week, whereas the 5-year Treasury-indexed hybrid adjustable-rate mortgage declined by eight basis points to reach 3%.

Factors Pushing Homebuilding Industry

The first affirmative factor boosting the homebuilding industry right now is the near-zero interest rate. The Federal Reserve decided to keep the federal funds rate unchanged, earlier in June. The central bank had decided on these rates in mid-March in a bid to bring the economy back on track after being hit hard by the pandemic. The rates (currently in the range of 0% to 0.25%) are expected to stay at this level for the next two and a half years.

When the Fed raises rates, it becomes more expensive for banks and other financial institutions to lend money. Therefore, these higher costs may be passed on to consumers in the form of higher interest rates, which are reflected in mortgage rates as well. When interest rates are low, homebuyers aren’t burdened with these higher expenses. This is why a low-interest-rate environment is beneficial for homebuyers.

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