Home Mortgage rates plummet to record lows on coronavirus fears
March 7, 2020 | Front Porch Realty
The 30 year fixed rate mortgage sank to its lowest level in history, dropping to 3.29 percent as worries that the coronavirus outbreak will slow the global economy increase.
As concerns intensify that the corona virus will have disrupt the global economy, mortgage rates tumbled to their lowest level in history of Freddie Mac’s survey of mortgage lenders, dating back to 1971.
According to the latest data released Thursday by the federally chartered mortgage investor the 30 year fixed rate average sank to a new low of 3.29%.
Mortgage rates fell to new lows this week
The 30 year fixed rate started the year at 3.72 percent and has fallen 43 points in two months. (A basis point is .01 percentage points.) Its previous low was 3.31 percent in 2012. At the start of 2000 the average fixed rate was 8.15%!
“Mortgage rates fell to new lows this week, as fears of further, unchecked spread of the coronavirus kept investors, and the Federal Reserve, in search of safety and stimulus,” said Matthew Speakman, a Zillow economist. “A week full of otherwise blockbuster political and economic news was still not enough to knock the coronavirus from its perch at center stage, where it dictated market movements to a historic degree.”
The COVID-19 aka coronavirus continues to unsettle financial markets. The Dow Jones industrial average surged on Monday, plunged on Tuesday and then rebounded on Wednesday. Mounting concerns about the fallout from the Coronavirus prompted the FED to cut its benchmark rate on Tuesday in an emergency step to keep the economy healthy.
The surprise rate cut was the largest since the December 2008 financial crisis is a move by the FED to sure up economic activity even though most data doesn’t show any slowing.
Lower rates are likely to drive refinances higher
Lower rates are likely to drive refinances higher and may entice home buyers out to shop as well. Thats certainly the Fed’s hope. However if buyers are hesitant to go shopping because they want to avoid contact with other, this could damped home sales. If the trend holds more generally, a slowdown in consumer spending could eventually lead to job loss and lower incomes.
Bankers seem reluctant to peg mortgage rates in line with their traditional relationship to the 10-year note
The FED doesn’t set mortgages rates, but its decisions influence them. The decision to cut the federal funds rate unnerved investors who fled to the safety of long term government bonds. The bond market rally caused the yield on the 10 year Treasury to fall below 1 percent for the first time.
The movement of long-term bonds, particularly the 10-year Treasury, tends to be one of the best indicators of where mortgage rates are headed.
“In 2020, mortgage rates are following the 10-year yield much less closely than they tracked it last year,” said Robert A. Brusca, chief economist at Fact and Opinion Economics in New York. “Bankers seem reluctant to peg mortgage rates in line with their traditional relationship to the 10-year note. This relationship will bear watching. It is the linchpin of how low mortgage rates will eventually go.”
Whitney Pipkin is a homeowner who is taking advantage of the low rates. She and her husband bought a single-family house in Springfield, Va., in 2015 using a VA loan. They refinanced in 2016 into a 3.25 percent mortgage. Pipkin talked to several lenders this week, three of which quoted her a rate of 2.75 percent on a 30-year fixed mortgage. The couple plans to take the savings from refinancing and use it to buy a minivan and a new fence.
The FED is trying to stay ahead of economic disruptions and redirect any recession concern
“As guilty as I feel to take advantage of something like the coronavirus, they do want to stimulate the economy,” Pipkin said. “We plan to spend the money that we make from this. We probably would have [refinanced] anyway, but this gives us more wiggle room to get the nicer fence, hire workers instead of doing it ourselves.”
The FED is trying to stay ahead of economic disruptions and redirect any recession concerns by softening the damage to consumer and business spending. The issue with mortgage rates following this drop will be the ability for lenders to meet the demand for refinances and new loans. If you are interested in talking to a lender call us today for our preferred
