As global markets reel from the coronavirus outbreak, the Federal Reserve slashed the federal funds rate by 1 percent March 15, bringing the rate to virtually zero. Does that mean mortgage rates will hit such lows as well? No. Mortgage interest rates are impacted more by the bond market, not the Federal Reserve.
Even before Sunday’s rate cut, mortgage and refinance applications were on the rise. The Mortgage Bankers Association (MBA) reported in their Weekly Mortgage Applications Survey that loan applications for the week ending March 6 jumped 55.4 percent from the previous week. And the Refinance Index hit almost 80 percent.
“Market uncertainty around the coronavirus led to a considerable drop in U.S. Treasury rates last week, causing the 30-year fixed rate to fall and match its December 2012 survey low of 3.47 percent,” said Joel Kan, associate vice president of Economic and Industry Forecasting, in an MBA press release. “[M]ortgage rates will likely stabilize but remain low for now. This in turn will support borrowers looking to refinance or purchase a home this spring.
Interestingly, even with mortgage rates at 50-year lows and a recent drop in the Treasury bond market, some argue that mortgage rates should be even lower.
Writing for the Orange County (Calif.) Register on March 12, business columnist Jonathan Lansner noted a rather large difference between bond and mortgage rates.
“The gap between what lenders are charging and what the bond market is saying is historically wide,” Lansner wrote. “When I put into my trusty spreadsheet a half-century’s worth of rate data, I found this week’s gap between these two key interest rates — what’s loosely a big part of mortgage-making profit — at 2.82 percentage points.”
Still, the low interest rates offer homebuyers the opportunity to find savings when they go to purchase a home. Lansner noted that a mortgage rate drop from 4 percent 3.25 percent rate in Los Angeles would reflect savings of about $64,000 for homebuyers.
For the D.C. area, lower rates are quite appealing, but they also likely mean more buyers in the game competing for limited inventory. Numbers for the first couple of months of 2020 indicate a very robust sellers’ market, with a majority of homes currently in Virginia selling in about 10 days or less. Stay tuned to DCRegionRealEstateNews.com for updates and analysis of the local market.
Christopher Prawdzik, an Accredited Staging Partner® Real Estate Agent, and his wife Angela Logomasini are licensed Realtors® with Samson Properties in Alexandria. Operating as D.C. Region Real Estate, they serve the Virginia, Washington, D.C., and Maryland real estate market and offer comprehensive real estate services, including 4½% full-service listings.
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