Mortgage rates close in on all-time record

Mortgage rates are dropping fast — and the reason is surprising.

The virus that originated in Wuhan, China has helped push U.S. mortgage rates down from the high 3s to just 3.51%, according to Freddie Mac.

At the end of January, 30-year mortgage rates sank to levels not seen since October 2016 — and before that, 2012.

Yes, rates are closing in on the all-time record set more than seven years ago.

If you’re looking to buy or refinance, it’s wise to lock in a mortgage rate now. They’re low thanks to market uncertainty and that could change any day.

The coronavirus and mortgage rates

We can already see that US mortgage rates are in decline. The annual U.S. mortgage rate was 4.54% in 2018 and 3.94% in 2019 according to Freddie Mac.

Mortgage rates averaged 3.72% in December, but in January — as the Wuhan coronavirus started to get increased media attention — rates sank even further.

• 3.72% — January 2nd 
• 3.64% — January 9th
• 3.65% — January 16th
• 3.60% — January 23rd
• 3.51% — January 30th 

For context, mortgage rates were at their lowest recorded average in November 2012, at 3.31%.

Coronavirus has investors spooked, and spooked investors buy mortgages

If we summed up why the coronavirus is affecting U.S. mortgage rates in one word, it would be “uncertainty.” But before we explain that, it helps to have a little background about where the uncertainty in markets is coming from.

“The coronavirus,” said The New York Times, “has shaken companies and investors around the world who have come to rely on China for its efficient factories, its increasingly affluent consumers and its years of hard-charging economic growth.

“General Motors, Ford, Nissan, and other auto companies have temporarily closed factories. Apple and Starbucks have closed stores. On Tuesday, Cathay Pacific, Hong Kong’s biggest local airline, announced steep cuts to China flights and plans to pare back across its network.”

The abrupt halt to business for these global companies can have far-reaching effects. It’s not just China that’s been impacted.

Mark Zandi, Chief Economist with Moody’s Analytics, explains that “the coronavirus is a serious mounting threat to the fragile Chinese and global economies.”

He continues, “It is hard to handicap how broadly the virus will ultimately spread and how virulent it will be, but it has already become highly disruptive to China and increasingly to the rest of Asia. The U.S. will not be immune to its ill effects.”

The impact on U.S. markets and real estate

When there is investor uncertainty, money tends to flow into the United States, the world’s most stable market. With more money in domestic markets interest rates tend to fall.

“The U.S. Treasury is the safe go-to place in times of uncertainty, so further drops in yields are a possibility,” says Lawrence Yun, Chief Economist with the National Association of Realtors. “That automatically lowers mortgage rates [as] demand gets juiced up.”

“The U.S. Treasury is the safe go-to place in times of uncertainty, so further drops in [rates] are a possibility,” says Lawrence Yun, Chief Economist, NAR

Dr. Yun also suggested that low mortgage rates and little supply will produce quickly-rising home values in the current market.

“The supply is lacking and will not be able to fully accommodate the rising demand. Home prices will get bid up too fast.”

“Another impact is a drop in Chinese buyers of U.S. real estate if there are travel restrictions. At the same time, some of the wealthy Chinese may desire to have a property out of China, including in the U.S. and thereby bring about even more demand.”

Should you lock in now or wait for rates to drop again?

This moment presents an interesting opportunity for mortgage borrowers. Rates are near historic lows and far, far away from the historic high (18.63% in 1981).

If you’re in the market to finance or refinance what do you do?

• If you believe rates will fall during the next few weeks then you might want to let the rate float
• Do you think rates could stagnate or rise? Then lock in a rate as soon as you get a chance

And what about a middle route? If you think rates are great now but might go even lower, then look for a lock-in with a “float down provision.”

With a float down, you’ve locked in your rate — but you get one chance before closing to lock again if rates go lower. Float down agreements vary among lenders so be sure to ask how the program works, what’s allowed and what isn’t.

As always with mortgage financing, shop around to get the best deal.