Lowest-ever mortgage rates go viral
The new coronavirus freaked out the Fed, which sent mortgage interest rates to the lowest level ever, yes or no?
Yes and no.
Freddie Mac's Primary Mortgage Market Survey this week showed the 30-year fixed-rate mortgage averaged the lowest rate in the history of the survey, which started in 1971.
The average drooped to 3.29%. The previous low was 3.31% in November 2012, in the aftermath of the Great Recession.
So, yes, COVID-19, the new virus, scared the Federal Reserve — and everybody else and their dogs.
On Tuesday, the Fed cut the federal funds rate — the interest rate that banks charge one another for overnight loans to meet reserve requirements — a half a percentage point to juice the economy. That influences credit card and other short-term interest rates. The Fed figured it needed it with so many people blowing their gaskets.
And that sent mortgage rates to the basement, yes?
No, although it's all related.
That other thing in the news — the spastic but swooning stock market — as usual, did more to move mortgage rates than the Fed. Nobody freaks out like stockholders, and COVID-19 did the trick.
Call it fundamentals, fear, or folderal, it worked. Stockholders sold. They became bondholders.
And nothing moves mortgage rates like freaked-out stockholders turned bondholders.
For mortgage holders — and would-be home buyers and refinancers — the bond market is where the real action is because that's what drives mortgage rates. Freaking investors flocked to the safety of long-term U.S. government bonds. The more they buy, the lower the return per note. The yield on the benchmark 10-year Treasury note fell below 0.7% on Friday for the first time.
When Treasury yields fall, yields on similar investments, such as 30-year mortgages, also fall, because lenders selling packages of mortgages to investors on the secondary market pass along the lower rates to individual borrowers.
The market for 30-year mortgages looks to 10-year bonds for guidance, rather than 30-year bonds, because most mortgages are paid off within 10 years or so. People sell and buy, or refi. Almost no one takes 30 years to pay off a 30-year mortgage.
So, if you're desperate for a silver lining to the COVID-19 cloud and the decimation of equity on Wall Street, it's lower mortgage rates. Oh, and rising stocks for Clorox, Campbell's Soup and anybody who makes hand sanitizer.
Email Real Estate Editor Richard Mize at firstname.lastname@example.org.