How Coronavirus Concerns Are Changing Mortgage Rates

Economic uncertainty in the wake of COVID-19 sends mortgage rates historically low, and it might be the right time to buy or refinance.

U.S. News & World Report

Coronavirus Leads to Low Mortgage Rates

Row of houses in the suburb of Lakewood in the Cleveland Metropolitan Area

Currently there is no indication that coronavirus fears will negatively affect the U.S. housing market.(Getty Images)

The international spread of the coronavirus has led to economic uncertainty, volatility in the stock market and travel and other industries seeing a massive drop in customer activity.

But one area consumer demand is not waning is mortgage and refinancing options. In fact, recent economic volatility has driven down mortgage interest rates, which could actually boost homebuying activity.

On March 4, the average 30-year, fixed-rate mortgage rate was 3.29%, according to Freddie Mac, a record low for the last 50 years and down more than 1 percentage point from the same time last year. On March 12, Freddie Mac reported the average 30-year, fixed-rate mortgage rate climbed slightly to 3.36%, though it still remains nearly a full percentage point below the average rate from the same week in 2019.

A contributing factor to the drop in mortgage rates is that fact that the Federal Reserve reduced interest rates on March 3, making the target range 1% to 1.25%. On March 15, the Fed went even further and cut interest rates to zero, announcing plans to buy $700 billion in government and mortgage-related bonds in an effort to protect the economy as the coronavirus forces many people to halt their usual activities.

Mortgage interest rates are determined independently of the Fed’s target rate, but the emergency rate cuts are certainly influencing the lending industry’s offered rates.

You may feel preoccupied with concerns about your health, investments and other factors that crop up daily as the number of coronavirus cases in the U.S. grows. But this may also be a prime time to examine how your mortgage options could benefit you in the long term.

Here’s what you need to know about mortgage rates right now, and how to determine the best steps for you.

Should I Refinance My Mortgage Now?

With mortgage interest rates as low as they are, it makes sense to explore your options and see if you can secure a new interest rate that will save you more in the long run and help you to pay off other debts sooner.

However, know that you’re not the only homeowner trying to benefit. Refinancing applications increased 78.6% in the week that ended March 6 from the week prior, according to data from the Mortgage Bankers Association. That's 479% higher than the same week in 2019.

By sheer volume of interest, lenders are already overwhelmed. “There’s only so many people to work the volume that’s coming in right now,” says Nicole Rueth, producing branch manager of the Rueth Team with Fairway Independent Mortgage Corporation in Denver.

So expect long wait times on the phone or online to interact with a representative for your lender. But if refinancing will free up cash to increase your savings to pay down other, high-interest debt, it may be worth the wait. “All it costs is your time to check,” says Danielle Hale, chief economist for realtor.com.

Should I Apply for a Mortgage Now?

If you’ve been planning to buy a home and are financially prepared, now would be a great time to apply for a mortgage and lock in a low interest rate. As is the case with homeowners who are looking to refinance, however, you can expect connecting with a lender to take a bit longer.

Rueth reports that some lenders are even “tapping out.” She notes that a local credit union in the Denver area is temporarily refusing new clients, both due to a lack of personnel resources and to avoid lending too much at a low rate.

But many homebuyers will still be able to secure a mortgage or refinance, and the spring homebuying season is expected to remain competitive in many markets throughout the U.S.

“So far we haven’t seen any evidence of buyers changing their plans or interests, and low mortgage rates are going to help bring some buyers in who otherwise might not have bought a home this year,” Hale says.

While a boom of refinancing may encourage more homeowners to stay in their homes longer, which would contribute to a shortage of available housing inventory, some may see this as an opportunity to put their house on the market. “If they’re feeling confident, then absolutely they’ll move up to that bigger home – if they can find it,” says Odeta Kushi, deputy chief economist for First American Financial Corporation, which provides title insurance and risk solutions services for real estate transactions.

How Long Will This Period of Low Mortgage Rates Last?

Already, the wave of mortgage and refinance applications has led many lenders to raise interest rates at least somewhat, although they remain low overall. The Fed's move to cut interest rates again on March 15 will likely reflect in a brief period of historically low rates. Still, lenders can’t sustain their businesses at such low rates. “It’s not natural for banks to loan 30-year mortgages at 2.99%,” Rueth says.

However, that doesn’t mean mortgage rates will shoot up anytime soon. “It’s going to require other economic factors for mortgage rates to go higher in a big way,” Hale says. Even if the stock market were to stabilize and the coronavirus all but disappear, there’s no expectation that mortgage rates will make affording a home significantly harder.

For comparison to today's 3.36% average rate for 30-year, fixed-rate mortgages, on March 14, 2019, the average 30-year mortgage rate was 4.31%, according to Freddie Mac. Looking even further back, mortgage rates peaked in 1981 at more than 18%. Economists and real estate professionals agree that mortgage rates will likely stay lower in 2020 than last year.

“Once some of the economic instability starts to settle down, the general consensus … is that rates will remain below 4%,” Kushi says.

How Will Coronavirus and Low Mortgage Rates Affect the Housing Market?

Going into spring, there’s no indication yet that coronavirus fears will negatively affect the U.S. housing market. If anything, low interest rates could help drive more homebuyer interest, which in some places may lead to an increase in bidding wars and decrease in the average number of days a house is for sale before it receives a compelling offer.

Compared with the stock market, real estate is an industry of slow-moving assets. In other words, you don’t see the same daily peaks and dips that you do with stock trading, which makes the real estate market more stable during an otherwise volatile time.

Parts of the U.S. significantly affected by the coronavirus will likely see brief pauses in homebuyer and seller activity, although those areas currently appear to be very small. For example, New York Gov. Andrew Cuomo announced on March 10 that part of New Rochelle, New York, has been turned into a "containment area" in an attempt to stop the spread of COVID-19 after more than 100 area residents tested positive for the virus. It's reasonable to expect house hunting and real estate transactions to slow, if not stop, in this area during the containment period.

“There may be localized demand shocks in areas that are most affected by the spread of the virus,” Kushi says. However, any containment or even a hypothetical citywide quarantine wouldn’t be indefinite; the New Rochelle containment is currently scheduled to end March 25.

Updated on March 16, 2020: This story was published at an earlier date and has been updated with new information.

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