Mortgage Rates vs. the Coronavirus: We Might Test New All-Time Lows

Posted on February 24th, 2020
Mortgage Rates vs. the Coronavirus: We Might Test New All-Time Lows

Mortgage rates can be pretty volatile. Just like stocks, they can change daily depending on what’s happening in the economy.

Beyond that, mortgage rates can move based on news that doesn’t involve a report on the economic calendar, such as a jobs report, GDP, housing starts, inflation, etc.

Even if there isn’t a direct financial implication to a news story, mortgage rates can go up or down.

Just consider the recent conflict with Iran, which may have pushed mortgage rates down a little lower, even though it was unclear what the outcome would be.

It turned out to be a short-lived situation, despite any obvious conclusion or resolution, but that’s just one of many recent examples.

How the Coronavirus Could Affect Mortgage Rates

  • Fear of a global economic slowdown has hit financial markets
  • Dow Jones off nearly 1,000 points, Nasdaq down 350 points
  • Investors fleeing market for safety of alternatives like bonds
  • This has pushed the 10-year bond yield down near its all-time low

Now we’re dealing with what could be seen as a global pandemic in the spread of Novel Coronavirus (COVID-19).

It may or may not have originated in Wuhan, China, but it has rapidly made its way across the globe, with Italy just confirming a fifth death from the virus.

The World Health Organization (WHO) hasn’t yet declared the coronavirus outbreak a pandemic, but did say it has “pandemic potential.”

In other words, there’s a lot to fear due to the unknown and the very real loss of life, and that explains the recent pullback in the stock market.

At the time of this writing, the Dow Jones was off nearly 1,000 points and the Nasdaq was down over 350 points. And that’s after a bad Friday as well.

Part of that has to do with the fact that large companies like Apple have already warned of profit hits due to global supply chain issues, which may affect sales.

The trillion-dollar company acts as a bellwether to other large corporations and the economy at large.

In short, when bad news happens, stocks go down. This is the market’s natural tendency to flee the volatility of the stock market for the relative safety of the bond market.

Some investors may also seek out “safe haven assets” such as gold, which tend to perform well in times of fear and despair.

There is typically a negative correlation between stocks and bond prices, and so today we’re seeing a big drop in the 10-year bond yield.

Long story short, when bond yields drop, so too do mortgage rates.

The Coronavirus Has the Ability to Push Mortgage Rates to All-Time Lows

  • 30-year fixed rates are only about .25% above all-time lows
  • Won’t take much for mortgage rates to test new records
  • Impact will depend on whether coronavirus spreads or slows
  • Watch out for a quick reversal if any good news surfaces

We know investors are quick to ditch risk when there’s uncertainty in the air. But the bigger question is will this pullback be meaningful?

Don't let today's rates get away.

Will it actually matter in a few months (or even a few weeks), or will it turn out to be just another headline that goes away once things settle down?

Hopefully it does get resolved soon for the sake of anyone affected.

But because we don’t have those answers yet, there’s a good chance stocks will continue to fall, at least in the short term.

As such, expect increased downward pressure to apply to mortgage rates too, which might be good news for those looking to refinance a mortgage or purchase a home.

Of course, mortgage rates are already pretty rock-bottom, and not necessarily holding anyone back. It’s the sky-high home prices that are causing affordability issues.

And really, lower rates may just exacerbate an already hot housing market, which is ushering in a return to bidding wars.

With regard to how much rates might move, it’s not totally clear since the coronavirus outlook can change in an instant.

As it stands now, the 30-year fixed is averaging 3.49%, which is just 18 basis points (0.18%) above its all-time low, per Freddie Mac data.

It wouldn’t take a whole lot for rates to test new historic lows given the fear and uncertainty at the moment.

Conversely, mortgage lenders will be quick to adjust their rate sheets higher if there’s any glimmer of good news on the topic.

Remember, with rates already so low, it’s harder for them to move even lower than it is for lenders to stand put or simply increase them.

Read more: Why It Might Be Better to Apply for a Mortgage When Things Are Slow

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