Mortgage rates have fallen to their lowest level in over a decade due to fears that the coronavirus will strike the U.S. Economy. This is encouraging homeowners to refinance their mortgages and enticing house hunters to apply for mortgages.
The Mortgage Bankers Association released Wednesday's survey of lenders. It found that home loan applications have increased 10% and refinance activity has increased 224% compared to last year.
Matthew Pointon, Capital Economics analyst, said that refinance rates rose partly because of a continuing decline in government bond yields to new lows amid fears about the virus wreaking havoc on the economy. In a research note, he stated that the yield dropped to 1% this week and that we expect mortgage rates to drop to record levels soon.
Low rates mean homeowners pay less over the course of their mortgage, principal and interest. This allows homeowners to return to their bank and change the terms of their mortgage. This is a move many Americans are doing.
Pointon stated that refinancing activity is largely immune to disruption by the coronavirus - so you can refinance in the comfort of your own home - this strength will continue."
Mortgage rates are expected to fall further after the Federal Reserve cut its benchmark rate by 0.5% on Tuesday due to possible virus impacts. This is the largest reduction since October 2008. Although mortgage rates don't move in line with the Fed benchmark rate, they are affected by monetary policies as lenders price loans on the basis of 10-year Treasury yields.
It is not clear if the low mortgage rates will attract more buyers, or if the economic uncertainty caused by the coronavirus chills home sales.