Coronavirus Panic Puts Pressure on Mortgage Rates

Pandemics are terrible things for humans to experience, and already more than 300 people, many of them children, have died in China. We’d all chose for that not to happen if we had that power. But since we don’t, we’re left to analyze the potential outfall.

Economists around the world are shrinking their economic forecasts based on the latest coronavirus updates. Mark Zandi, chief economist of Moody’s Analytics, said he has already shaved 15 basis points off his 2020 GDP forecast and is watching developments. Instead of a 1.85% expansion of U.S. GDP this year, he’s now expecting 1.7%.

“This is another hit to the U.S. economy,” Zandi said in an interview with HousingWire. “It’s just a question of how big.”

Investor fear is good for mortgage rates because it sends money flowing into the U.S. bond market. It increases the competition among investors in mortgage-backed securities – which are bonds – resulting in lower yields. That translates into cheaper mortgage rates for consumers.

“Money is going to start flowing into the U.S. bond markets even more than it already has,” Zandi said. Global investors see the U.S. as “the safe haven in the world, economically, and it probably is going to be the safest place to be, given this global pandemic.”

That’s going to put downward pressure on home-loan rates that already are at historic lows. The average U.S. rate for a 30-year fixed mortgage last week dropped to 3.51%, to the second-lowest level in three years.

But, there’s another risk from the coronavirus, Zandi said. If the economic slowdown is so big it starts to weaken the job market, it won’t matter, for some people, how low the rates go. You can’t get a mortgage without a job.

“If the economy slows to a degree we start seeing job losses, the mortgage rates won’t be enough to offset the ill effects of that weakness,” Zandi said.

Source: housingwire