But 2019 was a banner year, as trade wars and signs of a global economic slowdown resulted in cheaper financing. And just as rates were drifting up again this winter, the coronavirus struck.
Many remain cautious after the slowdown in 2018 and are unsure how quickly the latest crisis will resolve itself. They’re keeping rates relatively high compared to bond market yields to choke off business.
There’s also a major caveat to the current rate plunge: A global recession would be bad for business, particularly if the outbreak stalls wage growth and consumer confidence.
“If we have a sharp reduction in trade and economic activity, you will start to see people not qualify for a mortgage,” said Michael Jones, chief financial officer of Thrive Mortgage in Georgetown, Texas. “That is the biggest risk right now.”
For many, there’s never been a better time to borrow. Donny Schulze, a Hauppauge, N.Y.-based loan officer for Embrace Home Loans Inc., said one of his clients on Monday locked a 2.75% interest rate on a Federal Housing Administration-insured 30-year mortgage. The borrower’s down payment was just 3.5%. That was a day before the yield on the 10-year Treasury plunged below 1% for the first time ever. Other firms were also booking loans below 3%, mortgage executives said.
Interest rates for the typical 30-year mortgage should fall below 3.25% and remain there for the rest of the year, said Mike Patterson, chief operating officer at New Jersey-based Freedom Mortgage Corp. Mortgage investors were privately discussing on Tuesday how to price a new Ginnie Mae 30-year fixed-rate mortgage security that would yield just 2%, a first, Patterson said.
So-called current-coupon bonds guide loan rates, which means investors would be expecting lenders to package into securities mortgages with rates below 3%.
Schulze is advising some of his customers to wait before agreeing to rates being offered now, telling them that 30-year mortgage rates could drop to 2.5%.
“There’s not a lot telling me that rates will move up,” Patterson said.
--With assistance from Michelle F. Davis and Rob Urban.
This article was provided by Bloomberg News.