Interest Rates In The Time of COVID-19
At the beginning of 2020, the oracles forecasted a booming economic year and steady mortgage rates somewhere in the 4’s. Their crystal balls prophesied 2019’s low mortgage rates would become a unicorn, a blip to read about in history books.
That was of course, before COVID.
Now, the rates have fallen to areas no one could have ever dreamed. If you want bragging rights at your Zoom meeting for that unbelievable rate, be careful.
FYI: it is a COVID jungle out there. Please check the fees when you receive a quote. One of my refinance clients was quoted $10,000 in points to save .250 in interest. YIKES! Oh, and the lender “overlooked” the impounds and correct title fees on their initial estimate.
Low interest rates are a gift to homebuyers by allowing more purchasing power for primary, second homes and investment properties. If only there were more properties to purchase...
Why are the mortgage rates truly in historic times? Back in the ancient days (and decades) before March 2020, mortgage rates tracked the yield on the 10-year US Treasury. This marriage became dysfunctional because Dad (the Federal Reserve) stepped in to keep the housing family intact by purchasing mortgage backed bonds. As a result, the 10-year has fallen to its lowest level in history. But the rates have not fallen to match the lows or expectations. (If you follow the previous math, rates should be in the 1% range, really!)
Mortgage rates are typically based on what investors will pay for the mortgage backed bonds. Investors need some sort of return or else they will not buy these bonds. That is why the rates may not go any lower. Dad only has so much money.
What about the soothsayers predicting the economic future? Everyone’s crystal ball is a little cloudy. Do you know anyone who predicted the pandemic or the acceptance of day drinking or taking a coffee break to make cupcakes?
All we can do is stay tuned and stay positive for the future. When we can hug again and let the other person let go first.