Are Mortgage Rates Going to Stay Low During the Coronavirus Outbreak?

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Understandably, so many people in America right now have real concerns over managing their finances. With the growing presence of COVID-19, comes growing anxiety. In this post, we look at what the markets and industry-professionals are saying about the future of mortgage rates and answer the questions that are at the forefront of people’s minds about mortgage rates right now. 

What Will Happen to Mortgage Rates During the Coronavirus Crisis?

So, let’s first begin by stating that nobody can truly predict the outcome of this global pandemic. We don’t know how long it will continue for, nor do we know the real impact it will have on the financial markets.  

However, we can say, with some level of assurance, that the quantitative easing measures that are being implemented will help ease the pressure on individuals, businesses, and the economy of the country as a whole. 

It’s no secret that affordable mortgages help people to buy homes. So, when interest rates are lower, this positively impacts the housing market. However, for those of you with a keen eye on the markets right now, you will have noticed that despite the Federal Reserve slashing their interest rates by a full percentage point just last week, mortgage rates in the country increased.

Despite the reduction to a near-zero rate by the Federal Reserve, interest rates on home loans and borrowing have shot up dramatically. According to Marketwatch.com, a 30-year fixed-rate mortgage averaged 3.65% for W/E March 19th. This demonstrates an increase of approximately 30 basis points from the previous week alone. In terms of increases, this is the biggest hike that’s been seen since the end of 2016.

At the time of writing this post, interest rates on home loans are the highest they have been since the middle of January. When we jump back just two weeks ago, and the rates were averaging around 3.29%, and at a record low; things have come a long way in a relatively short space of time.

However, despite this temporary rise in mortgage rates, there’s good news on the horizon, as many industry-leading experts are forecasting a further reduction in the not too distant future. 

Expect Mortgage Rates to Reduce – But Not for Long

In reality, as zero % mortgage rate is unrealistic, and even with a near-to-zero benchmarked interest rate, mortgage rates just don’t track the direct movements of the Federal Reserve. 

Here’s why.

Because a mortgage is a long-term loan, interest rates will typically track alongside long-term bond yields and not short-term interest rates. But, for those individuals who are looking to snap-up the next wave of low-rate mortgage deals, you might not be left waiting for too long. 

The primary reason that home-owner loan rates have increased, in part, is due to the overwhelming number of applications that were made when it dropped the first time, just a few weeks ago. 

It’s thought by many in the industry, that as soon as the lenders clear their backlog, they will need to become competitive again. And this is when you should start to see the rates for borrowing starting to reduce once more. 

According to Danielle Hale, the Chief Economist at Realtor.com – “With the Fed cutting rates to 0% and re-starting quantitative easing, including purchasing mortgage-backed securities, mortgage rates are poised to drop back down and may even hit new record lows.”

The reason experts are forecasting this shift to be a short-term opportunity, is that as soon as the rates drop, they expect a huge surge in applications as people scramble to lock-in these lower rates once more. Once this happens, lenders are expected to follow the same pattern as they’ve just done, with a sharp increase to try and curtail the applications.

This is not the first time that the Federal Reserve has reduced its benchmark rate to this level. In order to help the U.S weather the storms of the Great Recession, rates were held at this level between 2008-2015. However, the median rate for mortgages was 4.2% throughout most of that period.

In Summary 

By this point, the original question of whether or not mortgage rates are going to stay low during the coronavirus outbreak; the answer, based on historical patterns and the present intent to support the economy during what is one of the most tumultuous periods, is a resounding yes. 

Although it is to be expected that there will be minor fluctuations over the course of the year, generally speaking, the low rates you see right now should be around for the foreseeable. It’s also highly likely that there will be a very short spell of another record-low rate in the not too distant future.

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