The mortgage rate forecast for March — can we talk about the elephant in the room?
If the Coronavirus becomes an epidemic in the United States, then rates on home loans are likely to fall even further.
The 30-year fixed-rate mortgage averaged 3.37% APR on Feb. 28, a decline of 38 basis points in just one month, it marked the lowest rate on the 30-year fixed since May 2016.
The downward trajectory of mortgage rates corresponds with the spread of the novel Coronavirus that was first detected in China in late 2019. Rates began falling gradually in January and continued to tumble as the number of cases grew.
Mortgage rates fell because of a chain of events that began when worried investors worldwide sold stocks and bought bonds, in an effort to park money in a safe place.
U.S. Treasury bonds are considered the safest investment because they’re backed by the federal government. (stocks, on the other hand, can lose value.) The strong demand for Treasury bonds provoked a steep drop in their yields and interest rates followed.
Yields on 10-year Treasury fell from 1.51% on Jan. 31 to 0.569% the morning of March. 9, a record low. At the same time, the average rate on the 30-year fixed mortgage fell from 3.75% APR to 3.29%.
The drop in mortgage rates has made homes more affordable. At the end of January, the monthly principal and interest payment on a $200,000 loan would cost $926. A month later, a buyer could borrow $209,600 for the same payment. Falling rates offer a refinance opportunity! Lenders report soaring refinance applications of 224% in the second half of February and those numbers are increasing through March.
It is unusual for mortgage rates to fall during a time of strong job growth; 273,000 jobs were created in February. But the spread poses a threat to economies around the world, extending the flight to safety and causing bond yields to fall as well as rates, because they tend to move in the same direction as bond yields.
The Federal Reserve executed an emergency reduction in short-term interest rates Tuesday, March 3rd, after mortgage rates already had fallen. The Fed’s half point rate cut was in reaction to the steep drop in Treasury yields and so that consumers would gain more confidence in the market.
As the instability in the market continues, all potential borrowers should seek professional advice regarding their specific situation, whether looking to purchase or refinance.
John Milz | Mortgage Originator | NMLS #1061197
Gold Star Mortgage Financial Group, Corporation | NMLS #3446
3301 Bonita Beach Rd., Suite 112| Bonita Springs, Florida 34134
O: 239-676-3246 | C: 239-248-0163 | F: 866-927-6275 | E: jmilz@GoldStarFinancial.com