Mortgage rates moved meaningfully lower over the past 2 days as panic over the coronavirus outbreak continues affecting financial markets. If this epidemic ends up being similar to SARS in 2003, it ultimately won't be worth as much of a drop in interest rates as we've seen so far. But the thing about brand new strains of deadly viruses is that neither the market nor the medical community knows exactly how this will unfold. Until that picture becomes clearer, the market is preparing for more dire outcomes.
For whatever it's worth, the timeline of the SARS outbreak spanned 2 calendar years (2002 - 2004) but the most notable market impact was confined to the space of a single month (March 2003).
Mortgage rates remained in line with 3-month lows today for the average lender. Several lenders offered marginally better terms compared to yesterday, but in those cases, the only changes were to the upfront costs associated with the same rates quoted yesterday.
It's a pleasant surprise to see rates as low as they are considering several economic reports have been quite strong recently. In general, stronger economic data tends to put upward pressure on rates. That was a risk today with today's Existing Home Sales report coming in at the best levels since early 2018. But econ data isn't the only consideration for the bond market that underlies day-to-day rate movement.
Mortgage rates dropped to begin the holiday-shortened week as markets expressed a bit of panic over the coronavirus outbreak in China. This is similar to the SARS outbreak in 2003, which certainly had an impact on both stocks and bonds. While it's too soon to know if the new iteration of the disease will run a similar course, it's not too soon for markets to begin heading in that direction preemptively.
Specifically, fears surrounding the outbreak lead investors to expect commerce, in general, to take a hit. Sure, the average person may not change their daily routine because of Coronavirus, but many will (and have). A decrease in the level of commerce implies lower stock prices. Simultaneously, investors can seek safe havens for their money in the sovereign bond market (such as US Treasuries).
Mortgage rates moved slightly higher over the past two days as strong economic data and corporate earnings coaxed investors into riskier assets like stocks. Bonds (which dictate interest rates) are always being bought and sold, but demand varies depending on investors' risk appetite. If demand for bonds falls as it has in the 2nd half of this week, rates move higher.
Fortunately, this move has been very small in the bigger picture. Mortgage rates, specifically, have moved even less than rates associated with other bonds. The average lender is still able to offer 30yr fixed rates of well under 4% on top tier scenarios. And the average borrower wouldn't see more than 0.00125% of difference from the lowest rates in more than 3 months. Bottom line, while rates are slightly higher than their best recent levels, you'd have to go back to early October or before to see anything significantly better....(read more)
Mortgage rates improved modestly today, adding to yesterday's slightly less compelling improvement. Taken together, they keep an air of calm and steady progress intact during a week that ran the risk of stumbling across volatility.
One of the key sources of potential volatility was today's signing of the US/China "phase 1" trade deal. Granted, it was only much of a risk in the event that something unexpected happened. Needless to say, nothing unexpected happened! Mortgage rates and the underlying bond market reacted accordingly as they merely went about their business for reasons known only to the traders pushing the buttons behind the scenes (i.e. market movement was so well contained today that we're not able to connect any underlying events with the movement).