30-year mortgage rate rises amid economic upheaval as coronavirus spreads

Mortgage rates for the popular 30-year loan have risen, according to data released by Freddie Mac on Thursday, reflecting lenders’ move to tamp down an avalanche of applications from homeowners seeking to refinance.

Investor uncertainty over the coronavirus pandemic sent mortgage rates plunging to their lowest levels on record last week, spurring heightened activity among house hunters seeking loans and especially homeowners seeking to refinance.

Refinancing applications soared 79% from the previous week, according to the Mortgage Bankers Association (MBA). The flurry of interest prompted the association to double its previous forecast of volume for refinancing to $1.23 trillion for 2020.

House hunters also have shown enthusiasm for the historically low rates. Virtual tours are up, and mortgage purchase origination applications rose 6% from the previous week.

With the widening ramifications of the pandemic - the Dow Jones industrial average entering a bear market and job losses in transportation and tourism - housing experts expected the mortgage rate to drop even more this week. Investors have fled the stock market amid the crisis, parking their money in the safety of the 10-year Treasury note. Yields tend to fall when more people invest in them. The trajectory of mortgage rates follows the rise and fall of the yield of the 10-year Treasury note, which reached nearly zero.

Freddie Mac, which bases its figures on a survey of lenders across the country, reported Thursday that the 30-year fixed-rate average rose to 3.36% with an average of 0.7 points. (Points, representing 1% of the loan, are fees buyers pay to lenders on top of interest rates.) The 30-year average hit its previous historic low of 3.29% last week. It was 4.31% a year ago.

"My reaction was disappointment and confusion," said Lawrence Yun, chief economist at the National Association of Realtors. "Under historical spread conditions [given the rock-bottom Treasury note yield], the mortgage rate should have been around 2.5%. But we're not in normal times."

Adam DeSanctis, spokesman for the MBA, said the lenders have had to increase the 30-year mortgage rate to curtail interest in refinancing while they get control of the overwhelming demand. In 2018, he said, the industry cut back on staff amid a fall off in demand resulting from rising mortgage rates and has yet to recover. "Lenders are attempting to cope with refinancing activity that far exceeds their capacity."

Because of the higher rates, homeowners and buyers may want to discuss a longer rate lock with their lenders because of the rush to refinance, said Michael Borodinsky, vice president of Caliber Home Loans in Edison, New Jersey.

Other rates followed analysts' expectations. The 15-year fixed-rate average fell to 2.77% with an average 0.7 points. That rate was 2.79% a week ago and 3.76% a year ago. The five-year adjustable rate average dropped to 3.01% with an average 0.2 points. It was 3.18% last week and 3.84% last year.

Real estate experts are watching consumer behavior carefully to see if housing will continue to be a bright spot in the economy or whether house hunters will opt to hold back in the crucial spring home buying season.

"The next few weeks will be telling in regards to how much some of the uncertainty in the economy will affect the psyche of prospective home buyers," DeSanctis said.

"Seattle, where Redfin is headquartered, was the first city to see cases and we've seen a little hesitation in the housing market as the virus has ramped up," said Daryl Fairweather, chief economist at Redfin real estate brokerage. "But it's not all that negative because some buyers think maybe there will be a little less competition if some people wait to see what happens with the virus."

Lower mortgage rates have offset rising housing prices, theoretically bringing homeownership within reach of more people. Nationally, the share of homes available in the $2,500 a month range increased nearly 2 percentage points in the first week of March 2020 compared with the same period last year, according to Redfin. But low inventory of houses for sale continues to be an obstacle.

"The typical principal and interest payment is $100 lower now compared with one year ago even though prices are up 3.9%," said Danielle Hale, chief economist of Realtor.com. "Of course, finding a home to buy with the low rate is probably still a bigger challenge for most shoppers."

Morgan Knull, an associate broker with Re/Max Gateway the Washington region, said he is seeing a bigger impact.

"I'm working with buyers whose mortgage budget has increased by $75,000 due to falling interest rates," said Knull. "This means their purchase ceiling has increased by 10% even as their monthly payment would remain the same. That's a real game changer."

So far, real estate agents say they're seeing little evidence of buyer hesitation. Still, they say, coronavirus is on everyone's mind.

"Our open houses have been busy, lots of appointments are being made to show houses, properties are coming on the market and they're selling fast," said Corey Burr, a real estate agent with Sotheby's International Realty in Chevy Chase, Maryland.

On the other hand, Burr acknowledged, consumer confidence has a big impact on real estate and that confidence could change fast if the virus becomes more widespread in the Washington region and more schools close. In that case, he expects some people would delay their purchase. "Of course, people are talking about the virus, but until people see someone they know get sick they're not that worried."

Fairweather said that Redfin has seen a slight increase in the popularity of virtual tours, which they provide with all their listings.

"Maybe buyers will look a little longer online at photos and tours and focus more on only visiting homes that they want to make an offer on," she said. "We're also suggesting that agents be flexible and do a live video tour on their phone for a buyer who doesn't want to venture out."

Meanwhile, overall mortgage applications soared to their highest level since April 2009, according to the MBA. The market composite index, which measures total volume of applications, rose 55.4%. The refinance index soared 79%. It was 479% higher than a year ago. The purchase index, which measures new mortgage applications, rose 6%.

“Millions of Americans will benefit economically from substantial reductions to their monthly mortgage payment, which in turn could provide stimulus to the economy during these unsettled times,” Bob Broeksmit, president and CEO of the MBA, said in a statement.