A lot has happened this week since the coronavirus (COVID-19) outbreak turned pandemic. There’s plenty of commotion going around due to uncertainty of how things will pan out. Precautionary action has been in full effect on global, national, and personal levels.
The global spread of COVID-19 has caused much stress on stocks, bond yields, and the financial market as a whole. The stock market has seen it’s biggest one-day loss in history with the Dow falling a staggering 2,013.76 points, plus. Investors are looking for cover and holding tight. There has been a halt to trade, the first in twenty-three years, and oil prices have been slashed each and now down by 25 percent. President Donald Trump also announced a travel ban from Europe, while business, national events, and tourist spots are postponing, canceling, or telling patrons and employees to stay home. Economists are expecting recession warnings after the major actions. They are keeping a close watch at how consumer behavior shifts to panic and hesitancy during such serious events.
But how does something like the COVID-19 have any relevance to the real estate and mortgage industries?
The first week of March showed an all-time low in mortgage rates and they continue to drop. The 30 and 15-year fixed-mortgage rates both saw a 16 basis point decrease with the 30-year fixed rate falling to 3.29 percent. This resulted in an 8-year low as rates take their cue from the plunging U.S. Treasury Yields. This was after the Fed had an emergency rate cut to match market expectations. As of this week, mortgage rates went up despite the virus commotion. The 30-year fixed increased 0.07 percent to 3.36 percent. The 15-year fixed did a slight decline from 2.79 to 2.77 percent.
Rates were quickly fluctuating, sometimes showing a change from morning to afternoon. Potential homebuyers and owners are taking full advantage of the low-interest rates. Mortgage and refinancing application volume increased substantially. With the appeal of lower-cost financing, potential buyers will benefit from more home affordability. With the virus-scare continues, it is already creating an economic slowdown. If it continues, housing prices will slow even more than expected which could create more affordability for consumers. This could potentially boost the housing sector. A large amount of new prospective buyers were expected to enter the market this year. If rates continue to stay this low going into the spring months, sales volume could rise up to a 13 year high and annual home price growth may begin to quicken again. It may be too soon to tell with so much uncertainty, but the outlook is positive for home buying activity.
Many major banks and other lenders are raising their rates because they cannot keep up with demand. Some are not taking any more applications. Lenders may make the availability of certain products more limited due to the high demand. Employees are processing anywhere from 2.5 to 3 times more loans than this time last year. As of February, the Mortgage Credit Availability Index (MCAI) showed a 0.3 percent decrease from 181.9 to 181.3. This drop reflects a tightening of mortgage credit offered for the third month in a row. Banks are less fragile today, not as heavily leveraged, and have returned to a much better place than where they were in the 2008 crisis.
Not only has this directly affected the U.S. markets but the foreign markets are creating even bigger hits. China happens to be the second-largest economy next to the United States. Since the outbreak started in China, the country’s real estate market descended 90 percent. Chinese buyers are also the largest foreign market to invest in the U.S. and for the last seven years, Chinese investors have been the top purchasers by dollar volume for residential real estate. Foreign real estate investment was already expected to drop this year. The COVID-19 has not helped in this area. However, Chief Economist, Danielle Hale of Realtor.com brings up an interesting point. She mentions:
“Chinese buyers represent the largest share of foreign buyers of U.S. residential real estate. They’ve faced headwinds in recent years from capital controls in addition to rising home prices….
…The epidemic is likely to hamper their ability to participate in U.S. real estate in the short-run, but it may lead to more interest in the long-run as buyers may seek to be more internationally diversified.”
Investors have been encouraged to look at the long-term factors and not be overcome by short-term fears. This can apply to consumers and the general public. Businesses and authorities are taking precaution but are looking towards any long-term effects to help take the appropriate action
The underlying U.S. economy stands on a good foundation. Unemployment was holding its lowest numbers, consumerism continues to see boosts, and the housing sector has been on the upswing. So will this low mortgage rate trend continue? As of now, the effect coronavirus is having on the markets won’t necessarily disappear right away. Change can happen quickly tomorrow or next week. The Feds could potentially cut rates even further. Only time will tell. All of this can certainly make us feel uncomfortable. The best thing you can do? Be prepared, do your research, and talk to a professional resource. Oh and remember to wash your hands!
This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional. The article was written by Sparkling Marketing, Inc. with information from resources like Mortgage News Daily, Business Insider, and Forbes.