Amid surging COVID-19, Fed could take steps to lower mortgage rates, boost economy – USA TODAY

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The central bank is also set to update its economic forecasts.

Here’s the breakdown of what the Fed may do:

How can the Fed cut long-term rates?

The Fed is now purchasing $80 billion in Treasury bonds and $40 billion in mortgage-backed securities each month, putting downward pressure on long-term interest rates, such as for mortgages and corporate bonds.  

The average maturity of the securities it’s buying is 7.4 years, according to Oxford Economics. Some economists expect Fed officials to buy the same amount of bonds but shift the mix toward those with longer maturities. That would inject more stimulus into the economy by further pushing down rates for mortgages, corporate bonds and other types of loans.

Federal Reserve Building

Why shift bond purchases to cut rates?

COVID-19 is spiking across the country, with cases, hospitalizations and deaths reaching new records. That has led to new constraints on businesses, particularly in California and the Midwest. Job growth slowed sharply in November and initial jobless claims, a rough measure of layoffs, jumped sharply to 947,000 the week ending December 5.

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Goldman Sachs believes the Fed will say it will keep buying bonds at the current pace until the labor market is “on track” to reach full employment and inflation is “on track” to reach 2%. That’s similar to the Fed’s criteria for raising its key short-term rate but not as rigid. It likely would mean the Fed starts tapering down the bond purchases in 2023, about a year before raising its short-term rate, Bostjancic says. 

Why a timetable for bond purchases?

Bostjancic says Fed officials likely want to avoid another “taper tantrum” – a 2013 spike in Treasury yields when Fed officials unexpectedly signaled they would start winding down bond purchases following the Great Recession of 2007-09.

Also, investors now expect the Fed to begin tapering the bond purchases in late 2021 or early 2022. By signaling a later start, it could spur more borrowing and cheer Wall Street, Bostjancic says.

Alexander, though, says the Fed may wait until the outlook is clearer before refining its guidance. 

How about Fed’s economic forecasts?

In September, the Fed predicted the economy would contract 3.7% this year and unemployment would end the year at 7.6%. But the economy has recovered from the pandemic more swiftly than expected, with unemployment already at 6.7%. Goldman Sachs expects the Fed to revise its forecast to a 2.5% contraction this year and unemployment of 6.8% at year-end.

New program puts Black real estate agents at forefront

The National Association of Real Estate Brokers and HomeLight has announced the creation of its “Black Real Estate Agent” program to provide financial, educational, and career support for aspiring Black real estate agents.

HomeLight is partnering with NAREB in this venture with the goal of ultimately improving the rate of homeownership for Black Americans across the country, according to Antoine Thompson, NAREB national executive director.

Black Americans represent less than 6% of all real estate professionals in the U.S., according to the Census Bureau.

“This initiative works to close the income and racial wealth gap in the industry,” Thompson said. “Together we’re holding open the door that would otherwise remain closed to Black professionals and consumers.”

Homeownership rates for Black Americans dipped to 44.1% in the fourth quarter of 2020. That’s despite an overall rise of 0.7% in homeownership in the fourth quarter of 2020.

As part of the Black Real Estate Agent program, HomeLight and NAREB will help cover up to $5,000 of the onboarding costs for new agents, including pre-licensing classes, agent exams and select marketing and technology needs. Each program participant will be paired with an experienced NAREB real estate counselor who will serve as a mentor and advisor.

The NAREB is seeking applicants in the United States who are between the ages of 18 and 35, are interested in a career in real estate but not currently established as an agent, willing to work with a NAREB broker during at least their first year in real estate, and committed to spending five to 10 hours per week working with mentors or on continuing education.

NAREB President Lydia Pope said “democracy in housing” cannot be reached without an increase of Black real estate professionals.

“Agents are the frontline and introduce homeownership to prospective clients,” Pope said. “We are confident that this new program will not only equip Black American program participants with the knowledge and practical experience to become top producers in their communities, but also significantly expand Black homeownership in their communities.” 

Black homeownership rate was the only demographic to decline year-over-year, according to the Census Bureau. White Americans increased homeownership in the fourth quarter to 74.5% – a nine-year high. Hispanic-American homeownership rose to its highest rate in three years, at 49.1% last quarter. Asian, Native, Hawaiian, and Pacific Islander homeownership was reported at 59.5% – up from the rate of 57.6% in the fourth quarter of 2019.

A report by Morgan Stanley showed that equalizing Black-White homeownership rates over the next 10 years would create more than 5 million more homeowners of color, generate nearly 800,000 new long-term jobs, and raise up to $400 million in additional tax revenues relative to current trends.

“Our goal is to drive sustainable, structural change by increasing access to job opportunities as well as education around how systematic racism has impacted the real estate industry,” said Sumant Sridharan, HomeLight COO. “We’re excited to partner with NAREB to offer this program to aspiring Black real estate professionals. Together, we believe we can fundamentally shift diversity and equality in our industry by increasing access to training, education, and support for Black real estate agents.”