The U.S. housing market has started to feel the impact of the Coronavirus and is beginning to react. Even though the virus started in China, its impact on the real estate industry is expansive. As the Coronavirus pandemic continues to spread, more and more people are looking for safe places to put their money. Among the safest investment types is the U.S. Government treasury bond market. With the demand for bonds on the rise, mortgage rates are doing down.
Who Have Been Affected
The Coronavirus is a disease that originated in China and has affected all types of people across the globe. At present, there are 35 known cases in the United States according to the CDC. When there is uncertainty in one area, say medical; it will spill over to affect other areas – banking and finance. The silver lining? For those looking to buy a home, they can use the dropping rates to save money on a mortgage. Since the outbreak of the Coronavirus, more Americans have been applying for new mortgages.
What is Happening
Following the outbreak of the Coronavirus, fixed mortgage rates have sunk to their lowest in the last three years. On Friday, February 21st, interest rates being paid buy government bonds dropped to 1.470% nearing the all time low set back in 2016 of 1.366%. This has been propelled by fears of the impact that the virus could have on the economy. Countries such as the U.S., U.K., France, Japan, and Australia are evacuating their citizens from China. As the concerns about the virus continue to increase, the volatility in bond and stock markets is also increasing. The amount of money spent on stocks has been on the decline, while investments into bonds has been on the rise. Last week, the DOW Jones Industrial Average plunged 1,000 points.
Where Mortgage Rates Have Been Affected
The effects of Coronavirus on mortgage rates has been felt throughout the United States and other countries. The United States housing market has felt the impact as mortgage rates have continued to drop. In addition, Chinese home buyers in the US, which are also major propellers of the market, have quickly vanished. Since China has been an important source of foreign real estate demand, their exit will result in a softer upper-end market.
When the Rates Started Dropping
The 30-year fixed-rate mortgage has dropped an average of 0.7 points to 3.45% in February compared to 4.41% a year ago. Although the rate is still above the all-time low of 3.31% in 2012, it has not been this low since October 2016. At the same time, the 15-year fixed rate has fallen below 3% for the first time since November 2016. This is a drop of 2.97% with an average of 0.7 points. Although mortgage rates are expected to go back up in the future, concerns about the Coronavirus are still slowing down economic growth.
Why the Rates Have Been Dropping
The reason for the drop in mortgage rates is economic uncertainty that has spread quickly from one part of the world to the rest. This uncertainty is affecting consumers and investors everywhere, influencing their investment decisions. The Chinese government has been fighting the spread of the virus, with efforts including a lockdown on travel. Other countries have also taken measures by imposing their own travel restrictions. The knock-down effect of this is the plunging of stock markets, with stocks becoming more versatile. This has pushed investors to look for safe-havens for their money.
How the Mortgage Rates Have Dropped
Naturally, bond prices rise when investors rush to buy bonds. Consequently, bond yields, including the interest rate attached to them tend to fall. The increase in the demand for treasuries causes a reduction in the interest paid and mortgage rates. This makes it cheaper for investors to borrow. Such trends spur homeowners to refinance their loans while potential buyers are encouraged to go house hunting.
