Mortgage Rates Hit Near Lows due to the coronavirus scare:
The Dow Jones Industrial Average dropped more than 3,500 points last week. That was a 13% drop in the Dow.
- All other equity markets followed the Dow and entered market correction territory
- A market correction happens when the financial markets drop 10% or more
- The market enters Bear Market territory when it tanks 20% or more
- The reason for the volatility and market selloff is due to the coronavirus scare and uncertainty
- There is no cure and/or vaccine for the coronavirus
- More cases of the coronavirus are being reported as time passes
- Over the weekend, the first death from the coronavirus was reported in Washington State triggering the governor to declare a state of emergency
- More deaths followed in Washington
- More cases of the coronavirus were reported in Rhode Island, Illinois, and New York
- The financial markets do not react well to uncertainty and fear
- Panic is what is causing the major stock market selloff
- The Federal Reserve Board cut interest rates by 50 basis points yesterday in an emergency interest rate cut
- The interest rate cut by the Central Bank tanked the stock market by almost 800 points yesterday
- The drop was caused due to the Feds cutting rates due to uncertainty
- What does all this mean for the housing and mortgage rates?
- In general, when the stock markets drop and the 10-year yield tanks as it has under 1.0% yield, mortgage rates drop also
- Mortgage rates hit historic lows due to the coronavirus market scare
- Mortgage applications are up substantially since last week
In this article, we will discuss and cover the breaking news on Mortgage Rates Hit Near Lows Due To Coronavirus Market Selloff.
Mortgage Rates Hit Near Lows After Stock Market Correction And Selloff
Mortgage Rates Hit Near Lows after the stock market correction and selloff.
- While stock investors are in a panic mode and selling their stocks, mortgage borrowers are benefiting from low mortgage rates
- Mortgage loan applications were up almost 30% last week
- Some mortgage companies are reporting an increase of 40% or more in mortgage applications
- In general, mortgage rates drop when the stock market and 10-year yield on treasuries drop
- The 2020 housing market forecast was strong
- Now, the 2020 housing market forecast became much stronger with mortgage rates hit near lows due to the coronavirus scare
The average rate for a 30-year mortgage — which had already been falling for weeks, helping spark a surge of mortgage applications-tumbled to a new low of 3.34%. This is the lowest level in at least three years. Fears of the coronavirus had gained new footholds outside of China tanking stocks. At the same time, bond markets rallied as traders rushed to purchase safe-haven assets like U.S. Treasurys, which guarantee investors’ will get their money back, along with regular interest payments. When bond prices rise, interest rates fall, since investors are essentially competing to lend the government and other borrowers money. On Monday, yields on the 10-year Treasury note fell to under 1.0%, their lowest level since July 2016. While that, of course, means lower borrowing costs for the government, 10-year Treasury notes are also the key benchmark for 30-year fixed mortgage rates. While the term for most mortgages is 30 years, homeowners usually pay them off sooner.
Mortgage rates peaked at 4.9% back in 2018. This was the par rate for borrowers.
- Par rates mean a prime borrower with over 740 credit scores, 80% equity, and low-risk borrowers
- However, most borrowers had much higher rates than the par rate of 4.9%
- Lenders assess mortgage rates to borrowers depending on risk factors
- Loan Level Pricing Adjustments (LLPA) are pricing hits on mortgage rates for risk levels
- For example, a lower credit score borrower will get higher mortgage rates than the par rate due to their risk level. Same with higher debt to income ratio borrowers
- There are countless of pricing hits
- Due to LLPAs, many borrowers who closed on their home loans back in 2018 had mortgage rates higher than 5.0%
- Rates have been dropping most of last year
- However, mortgage rates have rebounded in the fourth quarter of 2019
- However, mortgage rates have never tanked as they did in recent weeks
Michael Gracz of Gustan Cho Associates said:
Earlier this month, the average 30-year rate slipped below 3.5% for the first time since September, and the Mortgage Bankers Association said applications jumped 5% on a seasonally-adjusted basis, to their highest levels since 2013. That was before Monday’s stock market sell-off pushed 30-year fixed mortgage rates even lower and 10-year Treasury yields continued to tumble Tuesday morning.
Will Mortgage Rates Head Lower In 2020?
Mortgage Rates Hit Near Lows but will it head lower? This is the million-dollar question. Nobody has a crystal ball and cannot predict the future. Mortgage rates will fluctuate this year. Back in 2013, mortgage rates hit a historic low of 3.25% Many homeowners who were in the refinance process and did not lock their rates lost the opportunity to refinance. Mortgage rates shot up over 4.0% literally overnight with no rebound back to the 3.25% rate. This can easily happen during the stock market volatility and the coronavirus scare.
Massimo Ressa of Gustan Cho Associates said the following:
The Federal Funds futures, the traders of a financial instrument used to bet on the bank’s interest rate policy, suggest investors see a 76% chance of two or more rate cuts in 2020. But even that wouldn’t necessarily mean mortgage rates continue to decline. Last year, rates fell steadily all spring as investors anticipated a rate cut — but then actually rebounded slightly when the bank finally acted in early August. Treasury rates certainly could fall further, especially if fears about slowing global economic growth bear out. Mortgage rates are already essentially as low as they have ever been, with previous lows in 2012 and 2016, both bottoming out around 3.3% to 3.4%.
It is up to the borrower whether they want to refinance today or take a gamble for mortgage rates to drop further. 50% of the experts are betting rates will drop further and the other 50% are claiming mortgage rates are at a bottom. Further rate drops would put rates in uncharted territory. It is highly recommended not to gamble with bottom fishing and pull the trigger in refinancing if you have rates over 5%.