Home loan rates touched all-time lows this past week, fueling refinance activity and creating a sense of urgency for homebuyers to lock in purchase loans.
The question many people are asking is, “how low can rates go?”
The short answer: no one knows. A lot will be determined by the economic impact of the coronavirus and that is impossible to predict at the moment.
What we do know:
- The coronavirus outbreak is improving in China and the outbreak numbers here in the U.S. have not exploded, as of yet. This is good news, and should it continue, it is unlikely we will see much lower home loan rates in the near future.
- Home loan rates have not improved in lockstep with the 10-year Note yield, which has also declined, though much more sharply, to a historic low of .66%. The reason: mortgage-backed securities (MBS), where home loans are priced, carry a different risk profile than that of Treasuries. Investors in MBS are subject to refinance risk when rates go lower. To offset that risk, investors demand a premium within MBS which creates a higher price to both the lender and ultimately the homeowner.
- Mortgage lenders are so busy they can hardly keep up with the business. What is one thing you don’t do when business is so busy? Lower prices.
Bottom line: today represents a golden opportunity to lock on the best rates in the history of the U.S. and should be taken by those who can benefit.
Forecast for the Week
The extreme volatility in the U.S. financial markets is likely to continue in the days ahead as the coronavirus headlines impact investor sentiment.
Economic reports are light, but we will see a key inflation report from the Consumer Price Index. Inflation has been subdued and will continue for the foreseeable future.
In this climate of uncertainty surrounding the spread of the coronavirus, mortgage rates are at historic lows and will likely remain low throughout 2020.
Weekly Initial Jobless Claims will garner some attention to gauge whether or not the job market is seeing any fallout from the coronavirus. It has not shown up yet. And last week, planned job cuts by U.S.-based employers declined in February from January, reports outplacement firm Challenger Gray & Christmas.
Reports to watch:
- Inflation data will be seen from Wednesday’s Consumer Price Index and Thursday’s Producer Price Index.
- Weekly Initial Jobless Claims will be released on Thursday with Consumer Sentiment being delivered on Friday.
Source: Vantage