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How will the Coronavirus pandemic affect mortgage rates?

By Nate Piña
Special to The Enterprise

The COVID-19 crisis is going to significantly affect mortgages, real estate and all homeowners, possibly all this year and next. It is the biggest single financial issue facing homeowners today.

How low did interest rates go?

The 30-year-fixed conventional mortgage rate was recently below 3% for the first time in the history of the U.S. until Monday, March 9. All data had pointed to rates going lower as more economic and COVID-19 news came out. Then, without notice, the music stopped. Investors called due hedge positions put in place by mortgagees and the appetite for new mortgages and mortgage-backed securities (MBS) dropped significantly.

365体育投注By the next day, mortgage rates went half of a percent higher. By the following week through Friday, March 20, 30-year fixed rates hit as high as 4.5% to 6%, depending on the loan type and scenario.

Where are they now? Why did they change so fast?

As of Monday March, 23, 30-year-fixed mortgage rates sit anywhere from 3.125% to 3.75%. What caused this sharp increase and now a decrease in mortgage rates is highly complicated, but was a combination of three main things.

365体育投注* First, uncertainty in the markets due to COVID-19 and a rush to liquidity, led to investors to divest in the market.

* Second, investors in mortgages saw a run on their portfolio due to early payoff penalties from high refinance volume, a devaluing of their assets due to unprecedented refinance volume, and interest rate offerings that didn’t leave room for much of a return on investment.

365体育投注* Lastly, capacity. There just isn’t enough human or financial capacity for as many mortgages that were qualified for a refinance. The mortgage industry saw nearly half a year’s worth of funding volume begin the application process in just two months’ time.

As of March 23, the Fed announced it would purchase an unlimited number of treasuries and securities tied to residential and commercial real estate to ward off a credit crunch. This announcement is what dropped mortgage rates over .5% from Friday. I expect there to be more volatility ahead, but I see rates being very low for a long time.

Where do we go from here and how will COVID-19 affect rates this year and next?

I am a firm believer that interest rates will come down over the next few months. As long as we flatten the curve on COVID-19 and begin seeing a physical recovery and treatment preparedness, the markets will begin to normalize and mortgage interest rates will begin to come back down.

365体育投注If we are able to find a vaccine and/or treatment and normalize the markets, we will see mortgage interest rates at some of the lowest rates in the history of U.S. mortgage rates. Low-interest rates, as compared to the historical average, should continue for the next 12 to 18 months.

365体育投注I believe that if you look at real estate as a longterm investment, if someone in our local market purchases a home or locks in a mortgage interest rate during this period, they will have made a sound financial decision.

— Nate Piña is a top producing mortgage lender at Fairway Mortgage. Call 530-847-6450 for more information.

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