The global threat of coronavirus has caused truly unprecedented chaos in the world’s financial markets. The mortgage market and interest rates are right in the middle of this craziness. There are some good things and some bad things about this current situation that all consumers should know.
U.S. Treasury Yield at All-Time Lows
The stock market has obviously been hit the hardest. Meanwhile, the 10-year Treasury yield has surged and reached all-time lows in the past couple weeks. In 2016, we saw the previous all-time low of 1.321%. Last Friday morning, it hit as low as 0.66% and stayed under 0.80% for the rest of the day.
Fed Rate Cut
Bond yield drops often indicate fear in financial markets. The coronavirus has brought massive fear and panic, which has resulted in even wilder swings in the bond market. The Federal Reserve reacted with a 0.50% emergency rate cut that went into effect last Tuesday morning.
The Fed Funds Rate can have an indirect impact on mortgage rates, but it mainly applies primarily to short-term loans and not long-term loans like mortgages. Sometimes, we’ll see the longer and shorter term rates move in opposite directions from one another. This is known as an inverted yield curve, which we experienced last year. The 10-year Treasury yield typically has much more influence on mortgage rates, but the market is so chaotic right now it’s hard to predict anything in the near future.
Take a look at this chart from US Housing & Mortgage Market Weekly. It shows the discrepancy between average mortgage rates versus the 10-year Treasury yield:
A longer-term chart shows how reliable the relationship will between mortgage rates and the yield will typically be:
Lastly, here is one more chart that illustrates the difference between the two rates over time. Right now, we’re seeing the biggest gap in quite some time.
With all this in mind, we actually did reach all-time mortgage rate lows last week, driven by the historically low Treasury yield. That may seem like great news for our industry, but it has actually caused more chaos than we can remember. Demand for mortgage loans is going through the roof and many lenders aren’t prepared. Some are even raising interest rates just to deter new business that they can’t handle. Others have stopped taking borrower applications altogether.
Because of such high demand, refinances are taking longer to complete, especially when a full property appraisal is needed. This makes it more challenging to lock in the rates while they are at their lowest. It appears as if the window of opportunity will remain open long enough for most borrowers to take advantage of lower rates, so it’s important not to make hasty decisions.
It’s more important than ever to work with a mortgage lender you can trust to explain everything, help you explore all of your options and manage the different time frames that affect your home loan or refinance. If you need sound mortgage advice in San Diego County, the team at Transparent Mortgage is here to help guide you through this unusual market.
Whether you are looking to apply for a mortgage loan or just have questions about what’s going on in today’s insane market, call us today at (619) 701-3906.