The 30-year fixed rate, which started the year at 3.72 percent, has fallen 43 basis points in two months. (A basis point is 0.01 percentage point.) Its previous low was 3.31 percent in November 2012. At the start of 2000, the 30-year fixed-rate average was at 8.15 percent.
The 15-year fixed-rate average dropped to 2.79 percent with an average 0.7 point. It was 2.95 percent a week ago and 3.83 percent a year ago. The five-year adjustable rate average slipped to 3.18 percent with an average 0.2 point. It was 3.2 percent a week ago and 3.87 percent a year ago.
“Mortgage rates fell to new lows this week, as fears of further, unchecked spread of the coronavirus kept investors, and the Federal Reserve, in search of safety and stimulus,” said Matthew Speakman, a Zillow economist. “A week full of otherwise blockbuster political and economic news was still not enough to knock the coronavirus from its perch at center stage, where it dictated market movements to a historic degree."
The coronavirus outbreak continues to unsettle financial markets. The Dow Jones industrial average surged on Monday, plunged on Tuesday and then rebounded on Wednesday. Mounting concerns about the fallout from the coronavirus prompted the Federal Reserve to cut its benchmark rate on Tuesday, an emergency step it hadn’t taken since the 2008 financial crisis.
“The surprise rate cut, the largest since December 2008, is a strong move by the Fed to shore up economic activity even though most economic data has not yet shown major slowing,” said Danielle Hale, chief economist at Realtor.com. “Lower [mortgage] rates are likely to drive refinances higher and may entice home buyers out to shop as well. That’s certainly the Fed’s hope. However, if buyers are hesitant to go shopping because they want to avoid contact with others, this could dampen home sales. If the trend holds more generally, a slowdown in consumer spending could eventually lead to job loss and lower incomes.”
The Fed doesn’t set mortgage rates, but its decisions influence them. The decision to cut the federal funds rate unnerved investors who fled to the safety of long-term government bonds. The bond market rally caused the yield on the 10-year Treasury to fall below 1 percent for the first time on Tuesday.
The movement of long-term bonds, particularly the 10-year Treasury, tends to be one of the best indicators of where mortgage rates are headed. But experts don’t expect rates to fall as sharply as bonds.
“In 2020, mortgage rates are following the 10-year yield much less closely than they tracked it last year,” said Robert A. Brusca, chief economist at Fact and Opinion Economics in New York. “Bankers seem reluctant to peg mortgage rates in line with their traditional relationship to the 10-year note. This relationship will bear watching. It is the linchpin of how low mortgage rates will eventually go.”
Whitney Pipkin is a homeowner who is taking advantage of the low rates. She and her husband bought a single-family house in Springfield, Va., in 2015 using a VA loan. They refinanced in 2016 into a 3.25 percent mortgage. Pipkin talked to several lenders this week, three of which quoted her a rate of 2.75 percent on a 30-year fixed mortgage. The couple plans to take the savings from refinancing and use it to buy a minivan and a new fence.
“As guilty as I feel to take advantage of something like the coronavirus, they do want to stimulate the economy,” Pipkin said. “We plan to spend the money that we make from this. We probably would have [refinanced] anyway, but this gives us more wiggle room to get the nicer fence, hire workers instead of doing it ourselves.”
“Rates are going down but maybe slowly,” said Mitch Ohlbaum, president Macoy Capital Partners in Los Angeles. “The Fed is trying to stay ahead of disruptions and redirect any recession concerns by softening the damage to consumer and business spending. The issue with mortgage rates following this drop will be the system capacity for lenders to service all the demands for refinances and locks for purchase money loans. If you are going to lock a rate for any mortgage, you should make sure the lender will extend the rate as necessary due to processing delays to ensure the rate is protected.”
Meanwhile, homeowners rushing to take advantage of the low rates drove the barrage of mortgage applications. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — increased 15.1 percent last week. The refinance index jumped 26 percent, while the purchase index fell 3 percent.
The refinance share of mortgage activity accounted for 66.2 percent of applications.
“The lowest mortgage rates in more than seven years led to a 26 percent spike in refinances last week, and the annual increase, at 224 percent, was even more impressive,” said Bob Broeksmit, MBA president and CEO. “Purchase applications fell 3 percent but remained 10 percent higher than a year ago. Refinance activity is likely to continue rising in the coming weeks, but it’s possible the volatile stock market and concerns about the economic impact from the coronavirus will convince some prospective buyers to delay their search.”
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