Interest Rates Across The Country During COVID-19 - Northern Title Blog
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Interest Rates Across The Country During COVID-19

Interest Rates Across The Country During COVID-19

The fear of a possible second wave of the coronavirus set a new record low for mortgage rates, according to a recent report by CNBC. This constitutes a sudden reversal; rates were expected to climb, but as with most events associated with the pandemic, nothing seems certain.

The Mortgage News Daily reports the 30-year-fixed mortgage at 2.95%, as of June 29, 2020. The possible reason for the fall: investors moved to the bond market, which is considered relatively safer.

Of course, it’s not news that the first wave of the coronavirus already did a number on the economy in April and May. For most of the past month, rates have been sitting at slightly above 3%, thanks mostly to a good employment report for May. Add that to many cities starting their reopening process, which prompted more selling in the bond market.

Go figure: the National Association of Realtors (NAR) reported that, after big losses in March and April, pending home sales soared to historic monthly gains in May. Its Pending Home Sales Index, which is based on contract signings, rose 44.3% to a total reading of an astounding 99.6%. That’s the highest month-over-month gain since January 2001. As a result, there has been a huge rise in mortgage demand, which could lead the way to a more encouraging economic recovery.

Overall contract signings are still down — 5.1% year over year, but NAR Chief Economist Lawrence Yun says, “More listings are continuously appearing as the economy reopens, helping with inventory choices. Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”

On June 24th, the Federal Reserve announced that it would continue to buy mortgage-backed bonds, which would help keep the lending market liquid. This is called quantitative easing, which helps keep the financial system healthy and chugging along. As a result, lenders will feel more confident about consumer borrowing, which in turn will stimulate the economy (even in the middle of a pandemic). The idea is for the Fed to keep shorter-term rates lower for longer, which will help create a sense of stability.

The trick worked, at least for a time. Low mortgage rates have helped spark a healthy recovery in the housing market, and a boon for homebuilders. The Mortgage Bankers Association (MBA) reported that mortgage applications increased 13 percent annually last week.

However, the Market Composite Index, a measure of mortgage loan application volume, decreased 8.7 percent on a seasonally adjusted basis from the prior week. Additionally, the Refinance Index decreased 12 percent from the previous week but was 76 percent higher than the same week one year ago. Even with last week’s decline, the MBA still anticipates refinance originations to increase to $1.35 trillion in 2020 – the highest level since 2012.

Much of the direction of mortgage rates in the near future rests on the course of the COVID-19 pandemic, especially the current resurgence of cases. If death rates continue to fall and hospitals are not overwhelmed, interest rates may rise.

Other considerations: which sectors of the economy will bounce back sooner? And stronger? The questions have yet to be answered.

Still, the narrative is often defying logic.

“The general sentiment from consumer surveys is that now is not a good time to sell a home because of Covid, economic uncertainty, and social unrest, but the data is saying the opposite,” Danielle Hale, chief economist for realtor.comtells CNBC. “Home prices are back to their pre-Covid pace and we’re seeing listings spend slightly less time on the market than last week.”

More unpredictability:

Ten-year Treasury yields usually behave the same as mortgage rates, offering investors a fixed rate of return over a certain period of time. However, mortgage rates and Treasury yields don’t always work in sync. The pandemic is one event that tore the two apart: mortgage rates were not able to keep up with Treasury yields.

The good news for home buyers, though: mortgage rates are going lower as Treasury yields rise. 

More good news: mortgage refinancing rates are also decreasing — for now. The average 30-year fixed-refinance rate is 3.33 percent. That’s down 14 points since the same time last week.

Freddie Mac also sees optimism; according to its website:

After the Great Recession, it took more than ten years for purchase demand to rebound to pre-recession levels, but in this crisis, it took less than ten weeks. The rebound in purchase demand partly reflects deferred sales as well as continued interest from prospective buyers looking to take advantage of the low mortgage rate environment.

The COVID-19 pandemic has taken us all by surprise, but there have also been some unlikely economic surprises as a result, especially when it comes to interest rates. Nobody knows what the future holds, but for the moment, interest rates are lucrative for those who want to buy or refinance a home.

Rethinking your interest rates could actually be a sure thing amongst all the unpredictability and confusion. Find out if this strategy is right for you. Contact us!