Coronavirus may drive mortgage rates to new lows

There is no known vaccine. Will the coronavirus epidemic that
has sickened 28,000 people and taken the lives of 560 souls turn
into a pandemic?

Isolation measures go only so far. And, that’s not working too
well as coronavirus has spread to 25 countries, including the U.S.
where we have 12 reported cases in six states, including
California.

How will this tragedy affect the U.S. housing market and
mortgage rates? Exactly when will we hit (mortgage rate) bottom?
And, what is that interest rate number going to look like? 3%? 2%?
Negative 1%?

According to Trading
Economics.com
, China represents 21.95% of the world GDP. All
forms of travel, manufacturing and trade with China are resulting
in a big slowdown in commerce. This is a very new and moving
parade, so detailed results are yet to be realized.

As the virus spreads, Chinese growth will be impacted negatively
this year, according to Professor Raymond Sfeir, economic analysis
chair at Chapman University. Demand for oil will drop. Supply
chains will be disrupted.

Blindsiding events like this drive volatility in global stock
markets. The U.S. Treasury market tends to be a money safety haven
as investors sell global stocks and buy U.S. Treasurys. The average
30-year fixed mortgage rate fell to 3.45% on Thursday, Feb. 6, the
lowest since August 2016.

The refinance index increased 15% from the previous week — its
highest level since June 2013 — and was 183% higher than same
week one year ago, according to the Mortgage Bankers Association.
The 10-year Treasury yield, which is the benchmark for 30-year
fixed-rate mortgages, fell around 20 basis points last week.

“(That’s been) driven mainly by growing concerns over a
likely slowdown in Chinese economic growth from the spread of the
coronavirus,” said Joel Kan, MBA’s vice president of economic
and industry forecasting.

Could this have a domino effect? Could it tip the U.S. into a
recession?

Not necessarily, but we could see further economic disruption.
Consumer confidence could wane if this virus continues to grow long
enough. And, we might witness the banks just saying no to new
business loans.

The 10-year Treasury is at 1.66% while the 2-year Treasury is at
1.44%. They are both trending lower. If enough money floods the
U.S. Treasury market, we could see the long-term bond rates sink
below the short-term bonds, a condition known as an inverted yield
curve.

Banks tend to reduce or stop lending when shorter-term money is
more expensive than longer-term money, making continued economic
expansion tougher. If banks have to offer depositors higher
short-term deposit rates than they can charge on long-term business
loans, they are losing money. And, they carry the risk that some
loans will default.

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No-cost refinancing with an improved mortgage is the ticket right
now because rates may be trending lower for quite a while. You
might be able to do it again in six months with another no-cost
refinance. Refinancing is like gambling with house money. Improve
your rate as you can.

Mortgage rates may certainly stabilize or rise once the
coronavirus is contained. We just don’t know for sure when that
will occur.

Freddie Mac rate news: The 15-year fixed rate
averaged 2.97%, its lowest level since December 2016 and down 3
basis points from last week. The 30-year fixed rate averaged 3.45%,
six basis points lower than last week.

The Mortgage Bankers Association reported a 5% increase in loan
application volume from one week earlier.

Bottom line: Assuming a borrower gets the
average 30-year fixed rate on a conforming $510,400 loan, last
year’s payment was $281 big bucks more than this week’s payment
of $2,278.

Eye catcher loan of the week: A 30-year jumbo
fixed rate purchase loan at 3.375% with 0.25% point cost.

Jeff Lazerson is a mortgage broker and adjunct professor at
Saddleback College. He can be reached at 949-334-2424 or
jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.Related
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Source: FS – All – Real Estate News 1
Coronavirus may drive mortgage rates to new lows