This proposal to relax verification standards is part of a larger discussion about how to balance accessibility and security in government initiatives, particularly those that support vulnerable and low-income groups. These legislators want to preserve the essential safeguards against identity theft while increasing the accessibility of the Direct File program for the taxpayers it is meant to assist. To that end, they are searching for substitute forms of identification.
Prominent advancements in the American economy, including the reduction of inflation and the expansion of employment prospects, are noted by experts as potential means of reducing immediate economic instability. Sam Khater, chief economist of Freddie Mac, stressed that the recent rise in mortgage rates does not always indicate the state of the economy overall. “We should remember that the rise in rates is largely due to shifts in expectations and not the underlying economy, which has been strong for most of the year. Although higher rates make affordability more challenging, it shows the economic strength that should continue to support the recovery of the housing market.”
Several factors affect mortgage rates, but one important one is how the bond market responds to changes in interest rates made by the Federal Reserve. Specifically, the 10-year Treasury yield is an important benchmark that lenders use to determine mortgage rates. The yield on the 10-year Treasury note increased noticeably from 3.62% in mid-September to 4.1% as of Thursday. This increase happened about the time when the Federal Reserve made a 0.5 percentage point reduction to its benchmark lending rate.
The Federal Reserve has increased interest rates seven times since March 2022 to rein in inflation. The cost of borrowing has gone up for all kinds of loans, including mortgages, as a result of these rate increases. Due to the consequent “lock-in effect,” many current homeowners are afraid they won’t be able to find a new mortgage with a better interest rate, which has made it more difficult for them to sell or refinance their properties. The already limited number of homes available on the market is being exacerbated by this effect.
The real mortgage landscape
High borrowing costs in the current market are making affordability issues worse. In addition to having to deal with increased mortgage rates, prospective homeowners must also deal with historically high real estate costs and a lack of accessible properties. The market has slightly cooled off, but overall, property values have stayed high. The national median sales price of homes climbed by 3.1% over the previous year, to $416,700 in the most recent month, according to the National Association of Realtors (NAR). Even Nevertheless, home sales have decreased by more than 4%, indicating the continued pressure on affordability even as prices have increased.
Despite a recent increase, mortgage rates are still lower than when they peaked in May 2024 at 7.22%. As the markets prepared for the Federal Reserve’s decision to cut its main interest rate in September for the first time in more than four years, mortgage rates had been steadily decreasing since July. Prospective homeowners were somewhat relieved by this decision, but the recent rate rise emphasises the ongoing volatility that has defined the property market over the past five years.
Redfin’s deputy chief economist, Taylor Marr, called the circumstances a “double-edged sword” for the housing market. “The housing sector faces two challenges as a result of high borrowing rates. Because they make buying more expensive, they reduce demand, but they also maintain low inventory because existing homeowners are reluctant to give up their low mortgage rates. Because price is still a top issue, this dynamic is making things challenging for both buyers and sellers, and the restricted inventory makes things much tougher.
There is a chance that relief will soon arrive. Over the coming years, Federal Reserve officials have signalled that they want to further reduce interest rates gradually. It is possible that these rate reductions will start later this year and go through 2025 and 2026. If put into effect, these reductions should progressively bring down borrowing rates, increasing the affordability of buying a home for prospective homeowners and maybe contributing to the stabilisation of the housing market.