You can 'buy an awful lot of home' right now — if you can find one

·2 min read

Historically-low mortgage rates are the primary driver of the red-hot housing market, according to one expert.

"The low mortgage rates basically drive what we refer to as house-buying power," Mark Fleming, chief economist of First American, told Yahoo Money. "How much home can you afford to buy? Well, a mortgage rate of 3% or 3.5% means you can buy an awful lot of home."

Read more: Mortgage rates: Here's how to get the best rate

Before the global financial crisis, mortgage rates ranged from 4.5% to 6%, then near-record lows. But rates sank lower after the Great Recession, especially as the Federal Reserve kept its benchmark interest rate near zero to spur economic growth.

"We've had mortgage rates in this very low range for about a decade now, so we've been stimulating house-buying power and demand for a very long time since the global financial crisis," Fleming said.

Mortgage rates remain near historic lows after the last two recessions. (Credit: Freddie Mac)
Mortgage rates remain near historic lows. (Credit: Freddie Mac)

Read more: Here's the history of the 30-year fixed mortgage rate

However, the low rates have exacerbated another problem in the housing market: a lack of homes for sale. 

Many existing homeowners have been able to refinance their mortgages and lock in rates as low as 2.5% to 3%, a move that "discourages them from bringing to the market supply," Fleming said.

Existing home sales dropped in May for the fourth consecutive month, marking the slowest annual pace since June 2020. The market is weighed down by low inventory and high prices: The median sales price again hit a record high of $350,300, eroding much of the affordability that low mortgage rates provide.

A houseÕs real estate for sale sign shows the home as being Òunder contractÓ in Washington, DC, November 19, 2020. - The US real estate market is booming even as the coronavirus crisis intensifies, and the seemingly insatiable appetite for new and older homes has sent prices soaring -- meaning more and more families with modest incomes are seeing their dreams of owning property shattered. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
A house's real estate for sale sign shows the home as being "under contract" in Washington, DC, November 19, 2020. The US real estate market is booming even as the coronavirus crisis intensifies. (Photo by SAUL LOEB/AFP via Getty Images)

Read more: Mortgage rates near all-time lows: Is it time to refinance?

And so while the Fed has signaled it won't increase its fed funds rate until 2023, which would put upward pressure on all interest rates, Fleming expects that mortgage rates will ultimately increase again from the lows that buyers now take for granted.

"We've gotten used to it, we've set our expectations around it," he said, noting that higher rates would help cool price appreciation as well. "That said, people will still buy homes. It's not purely a financial decision to sell or to buy."

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Janna is an editor for Yahoo Money and Cashay. Follow her on Twitter @JannaHerron.

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