Call him a party pooper, but the CEO of top retail mortgage lender Quicken Loans doesn’t expect mortgage rates to decline any further from their new all-time lows.
If anything, Jay Farner believes they will rise over the next few weeks, per a new interview with Marketwatch.
Yesterday, the 30-year fixed fell to 3.29%, according to Freddie Mac, its lowest level on record since hitting 3.31% in late 2012.
Some lenders were already offering rates below 3% this week, namely at 2.875%. Whether you had to pay points to get those rates was another question.
Why the Pessimism on Mortgage Rates?
- Quicken CEO points to an otherwise very strong economy
- The stock market had reached all-time highs before the coronavirus outbreak
- So if and when good news, or even not-so-bad news arrives
- Mortgage rates could return to higher levels seen a couple months ago
In a nutshell, Farner sees the underlying fundamentals of the economy as “very, very strong,” so much so that if anything positive surfaces, we might see a big reversal.
Basically, there’s so much negativity baked into the market right now that if anything good were to happen, we could see a stock market rally and a corresponding increase in mortgage rates.
“Even if they come out and say maybe the coronavirus will be a little bit worse than we thought that would bring certainty,” he told Marketwatch.
At some point, there will be certainty – whether it’s enough to stop the 10-year bond yield from freefalling is another question.
While he has a good point, just look at today’s jobs report for February, which was super positive, yet the Dow Jones was still down over 500 points as of the time of this writing.
The reason isn’t a mystery, it continues to be driven by the unknowns surrounding the coronavirus, which will dominate all other news until there’s some clarity.
And that might not come for months, while in the meantime music festivals and sporting events get canceled, or performed behind closed doors.
Even in a best-case scenario, the economy is going to be hurting from the slowdown in travel, tourism, eating out, and just going out in general.
Less consumption, aside from Wet Ones and toilet paper, is going to rear its ugly head in a few months when Q1 earnings reports are released.
So even if coronavirus turns out to be a lot less impactful than expected, the damage is largely already done.
Quicken Generated Nearly 7,000 Mortgage Applications in One Day
- Mortgage lenders are seeing unprecedented demand for home loan refinances
- Even if mortgage rates aren’t as low as they “should be”
- This may limit additional rate improvement while they hire staff to manage increased workloads
- In reality the 30-year fixed should technically be closer to 2.50% today
Meanwhile, business is booming at Quicken Loans, despite mortgage rates not being offered below 3%.
Farner revealed to Marketwatch that Quicken Loans “wrote nearly 7,000 mortgage applications” on Thursday, which sounds like an awful lot of home loans.
This speaks to my point yesterday about lender capacity, and Farner even explicitly said, “there’s a supply and demand issue here.”
While mortgage lenders have lowered rates in light of lower bond yields, they aren’t doing so “at the same pace” because of the operational costs involved with the surge in demand.
As such, “they won’t be able to keep up with the 10-year Treasury,” which has plummeted to around 0.75%, another all-time low.
The spread between 30-year fixed mortgages rates and the 10-year yield is typically about 170 basis points, putting a 30-year fixed mortgage at 2.45%.
We can round that up to 2.50%, meaning it’s possible the 30-year fixed could eventually fall well below 3%.
But Farner doesn’t see it, despite the market telling a very different story.
However, he is right – if the good news does come, it could very easily send mortgage rates surging higher in no time at all.
The question is will good news arrive, and if so, when?
Lastly, I wonder what his thoughts are on 0% mortgage rates?