How Coronavirus Affects Mortgage Rates

How Stock Market Affects Mortgage Rates And Housing Markets

Gustan Cho Associates are mortgage brokers licensed in 48 states

This ARTICLE On How Stock Market Affects Mortgage Rates And Housing Markets Was PUBLISHED On February 27th, 2020

How Stock Market Affects Mortgage Rates
Gustan Cho Associates

How Stock Market Affects Mortgage Rates And Housing Markets and should homebuyers panic?

  • The Trump economy has been booming since President Trump took office
  • The Dow Jones Industrial Average and all other market indices have been hitting record levels
  • Unemployment numbers are at a 50-year low
  • Inflation is at a stable rate
  • Record profits are being recorded quarter after quarter
  • Home sales are at a record high
  • New home starts are at historic levels
  • Consumer confidence levels are at an all-time high
  • Mortgage rates are at a historical low
  • More and more renters are buying new homes than ever in the history of the United States
  • Millennials are pulling the trigger to buy homes
  • There are more jobs than qualified workers
  • Wages are at an all-time high
  • Most workers feel confident about being employed in the years ahead
  • Job security is one of the biggest factors for people to pull the trigger to purchase a new home
  • However, the recent outbreak of the coronavirus has triggered uncertainty in the stock market
  • The Dow Jones Industrial Averages have plummeted this week
  • On Monday, the Dow dropped 1,000 points
  • On Tuesday, the selloff continued and dropped close to 900 points
  • Today, the Dow is extremely volatile and the selloff continues

In this article, we will discuss and cover How Stock Market Affects Mortgage Rates And Housing Markets.

How Stock Market Affects Mortgage Rates And Should The Recent Stock Selloff Alarm Homebuyers?

There is the general par mortgage rates for prime borrowers. However, lenders will hit borrowers with loan level pricing adjustments, also referred to as LLPAs. LLPAs are pricing hits based on the individual borrower due to the following:

  • Credit scores
  • Loan to value
  • Type of occupancy
  • Type of property
  • Debt to income ratios
  • Loan amount
  • Property location
  • Manual versus automated underwriting system 
  • Other risk factors

Prime borrowers are folks with over 760 FICO, 80% LTV, lower DTI, and other compensating factors.

How Stock Market Affects Mortgage Rates According To Experts

In general, if the stock market drops or is in a bear market, mortgage rates also drop. With the recent stock market selloff and the coronavirus epidemic scare, mortgage rates are dropping. Uncertainty in the market also makes the mortgage rates drop since the stock market selloff.

Bond Market Influence On Mortgage Rates

Mortgage lenders do not hold 30-fixed rate mortgages for the life of the term.

  • They package and bundle up the mortgage loans and create mortgage-backed securities (MBS)
  • Mortgage-backed securities are also referred to as mortgage bonds
  • These mortgage bonds are then sold on the secondary bond market
  • The bond market will have an impact on mortgage rates

Housing Inventory Versus Demand

What is the difference between housing stock and demand

Housing numbers, such as new construction housing starts and other housing data affect mortgage rates. Mortgage companies will increase mortgage rates when there is a shortage of housing inventory and housing demand is high. Excess and surplus of housing inventory and fewer demand for housing will yield lower mortgage rates. Mortgage rates are very volatile and affected when housing inventory is higher than the demand for housing.