Due to the outbreak of the coronavirus, financial markets across the globe have been shaken. While nobody truly knows the full force of the impact yet, one surprisingly promising piece of news is that mortgage rates seem to be on the move.
Following the reduction in interest rates being announced by the Federal Reserve earlier this month, mortgage rates have seen some fluctuation. Although they hit an all-time low in March, they have skyrocketed to a level not seen since January.
It is thought that the flood of applications for refinancing had overwhelmed lenders and resulted in many mortgage-backed bonds investors to withdraw. These are the actions that are believed to have caused a jump in mortgage rates by more than 50 basis points in a single day.
So, the big question remains…
Are we going to see mortgage rates going down again next month or again this year?
According to a statement sourced from CNBC released by the Chief Economist for the Mortgage Bankers Association, Mike Fratantoni:
“MBA expects these actions will lower mortgage rates, helping homeowners save money through refinancing, and thereby providing a boost to the broader economy.”Mike Fratantoni
The Federal Reserve
Although they are not presently scheduled to meet again until April 28th, there is always the likelihood of an emergency meeting, as has already been the case on two separate occasions in March. It is expected that there will be a further move made by the Federal Reserve, which will help to shift mortgage rates in a downwards direction. It’s highly probable that this will happen during April, and if not in April, then it is expected to occur just shortly afterward.
So far, the federal reserve has already committed to purchasing $200 billion in mortgage-backed bonds to help support the economy. This SHOULD increase the demand for mortgage-backed securities, which, in turn, should lower mortgage rates. This forms part of a wider quantitative easing round, amounting to almost $700 billion.
Mortgage Rate Predictions
The rise in rates is set to be a short-term solution to help lenders cope with the huge wave of refinancing requests that came flooding in following the drop in rates earlier this month. With rates shooting from 3.29% upwards to 3.65% just a few weeks later, this presents one of the quickest rate increases the country has ever witnessed.
The Return of Lower Mortgage Rates in 2020
In order for rock-bottom mortgage rates to become available, there needs to be a large enough demand from investors to buy mortgage bonds. At times when the stock market is uncertain, such as now, mortgage bonds are usually a safer investment option.
Right now, there is still a level of hesitancy for investors. This is due mostly to the fact that investors fear that there will be defaults due to the current climate, and as people’s livelihoods are looming in the balance, and there is a likelihood that homeowners will refinance, and eliminate they could have interest earned.
However, this can all be changed in a matter of months.
#1 – The volume of applications with lenders will ease off
Right now, lenders across the country are swamped with applications. It is being estimated that it could take up to 90 days to clear the backlog. After this, lenders will need to start competing again, and this should be actualized with lower rates.
#2 – More involvement from the Federal Reserve is expected
We’ve already mentioned that at present, investors are a little weary of mortgage-backed bonds. However, with the Federal Reserve already having committed to buying $200 billion worth of bonds to help support the economy; there is thought that they will commit to buying more of these bonds before the crisis is over. The resultant effect of these purchases should be lower interest rates.
A combination of the above factors could work together to bring about another round of attractive mortgage rates. Some suggest it could be as early as April, while others believe it will be in around 90 days’ time. When they do arrive, it’s expected that they will not be a long-time offering.
There are a few strategies being suggested to help people lock down these all-time low mortgage rates, the most sensible seems to be getting an application in now, keeping your file active with your lender, and floating it until the right time presents. This may involve submitting all of your income and asset documentation; but it would be prudent to hold off on an appraisal until you decide to lock the rate down.