Is The Coronavirus Infecting Mortgage Rates?

Certified Mortgage Advisor
NMLS 1701021
Published 
March 1, 2020

How coronavirus affect mortgage rates

Let's talk about the Coronavirus. Coronavirus is all over the news. There's so much fear going on around this. This might be founded based on facts. It also might be exaggerated a little bit, but I want to add some clarity to kind of what's going on as far as the coronavirus and how it's going to affect you buying a home or refinancing your home.

Because surprisingly, a virus-like this on this scale does have a pretty big impact economically. It actually changes mortgage rates. So the coronavirus has actually lowered mortgage rates, surprisingly, and it's weird to think how in the world does something like a virus change, how a mortgage gets paid back. So we're going to talk through that.

Also, in this article, I'm going to give you my suggestion on what you should do. There's a lot of noise out there, and we don't want that to throw us off of the game plan that we have. So I'll give you that suggestion also.

Rates during COVID

So rates are going down as fears, go up. And it's kind of a strange inner working of how the whole economy works. So you know, the S & P 500, which tracks 500 of the largest US stocks has actually seen its worst loss in nine years. So this is the worst loss that we've had in nine years in the S &P 500 and the S &P 500 shows us a lot of what's happening in the rest of the market nationally and can be an indicator of what's happening globally as well.

Stocks to less risky bonds

So we know what's happening in the US market is people are kind of freaking out a little bit, and what's ending up happening is investors are in stocks primarily because those grow the most relative to like a bond. So they're in stocks and what they're doing is they're taking their money and putting it into less risky bonds.

Bonds are less riskier than stocks

So bonds like mortgage bonds. Other types of bonds have less risk than stocks. So what investors are afraid of is the risk in the near term future. So they're taking all their money, putting it into less risky bonds. Some of those bonds include mortgages.

Bonds are now higher due to demand

So because they're putting their money into bonds and everybody wants to buy bonds. The prices are now higher. There's an inverse relationship between a bond's price and a bond's yield sometimes called the rates, and so as prices go up. Rates go lower. So it's kind of this weird play going on, but what's basically happening is investors are in the stock market. They're getting afraid that the stock market is not going to perform well, which we see it's not people are selling off their stocks and moving into bonds, creating the bond prices to go higher, creating interest rates to go lower. We can see that because we actually have an eight-year low.

Mortgage bond pricing trend

Now, I can show you the mortgage bond pricing. So this price appears kind of irrelevant. But we can see, this is the actual price of a bond with the 50-day average. We can see that these prices are skyrocketing, and if we compare that to mortgage interest rates, we can see the interest rates are going lower because as bond prices go up, mortgage rates go down. So it's kind of a strange thing.

Consumer Habits

The reason why the coronavirus has such a big impact on the stock market and the global economy as a whole is that it changes consumer habits. So things like eating out vacations business trips that can be affected effective people, fear that this virus is going to impact their life socially. Then we see fewer people eating out, going on business trips, taking vacations, going to local stores. And that ends up affecting America's Gross Domestic Product.

What is GDP?

That's called the GDP. It's basically how much we produce as a country and consumer habits make up 68% of the GDP.

Consumer habits and GDP are connected

So if consumer habits dropped down, that means us. Drops down. That means stock values dropped down and that's why people want to get into ponds. That's why the prices go up in the rates go lower.

Pandemic can shock the market

Something to note is that a pandemic could shock the market even further and cause rates to tumble down even more. So we're right now at the point where, um, we're not classified as a pandemic, but there's the potential for that to happen. And the severity of what this virus is going to look like is going to change how rates move over this next year.

So if we see a very severe reaction to this virus, then we're going to see rates drop down even further. If we see more of a mild to moderate reaction with it, then we're going to see rates continue to decline, but maybe not at the severity that they have over the past.

What to do during this uncertainty?

So ultimately, what should you do? Everybody's talking about what's going on with this virus. There's so much fear.

Don't fear your interest rate

Ultimately here's what I think you should do. This should not change your plan at all. Home buying is so much greater than your interest rate. If it was all about the interest rate, then you're making a poor financial decision based off of just one number.

Consider all factors

Home buying should be considering so many other factors going in and ultimately should be a larger decision about the wealth creation for you and your family. Is your financial situation set up to even purchase a home first, then you can start entering discussions about the rate.

Move forward

So what I would do is keep going forward with your plan, right? If right now you're renting and you're working on paying off debt, don't see that interest rates are low and think you have to take on the purchase of a home and take on more debt and all of this hassle and something that's ultimately not going to benefit you just because rates are low.

Just because rates are low doesn't mean you need to take on debt, right? That's what credit card companies do to try to get you to buy a credit card. They say here's 0% interest take on our credit card and then people go and put debt on, right? Low interest doesn't mean, I guess I have to go take out debt now.

Just keep sticking with your plan

If you're paying off debt for working on a down payment, if you're working on increasing your income, keep sticking with that plan. If you are purchasing a home or you are refinancing, then great. You have a side effect of interest rates being lower and continuing to drop. I wouldn't try to, you know, don't try to catch a falling knife. Don't try to catch it at the bottom.

Rates going up & down, don't move a lot!

Just if you have a loan right now, explore refinancing it. If you're purchasing now, great, you're going to have some great rates. But if you're on a different plan, stick to your plan. Interest rates are always going to continue to go up and down. You're going to find times where they're high. You're going to find times where they're low. It shouldn't change your overall strategy.

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