How Coronavirus has effected the Mortgage Economy

Recently, growing fears around the spread of the coronavirus have led to increased volatility in interest rates. With the Fed cutting its rate to 0.25% (the lowest it’s allowed), markets have been spinning off chaotically, bouncing up and down and causing many lenders to curtail pricing and temporarily suspend locking loans. While there is still much uncertainty surrounding the spread of the coronavirus and its implications, we expect markets to remain volatile and mortgage interest rates to fluctuate daily. If you have a mortgage loan in process, don’t panic. We are keeping a close eye on the market and locking when appropriate.

Starting in the second half of 2019, economic growth slowed around the world due to trade tensions and other factors. This development, along with expectations regarding the path for monetary policy, has pulled down the 10‐year Treasury rate – and subsequently mortgage rates.

In the rest of the economy, after growing at an average quarterly rate of 2.5 percent in 2018, it appears that 2019 was almost as strong with a growth rate of 2.3 percent, based on the BEA’s advance estimate of GDP growth. We expect growth to slow to 1.2 percent in 2020 and 1.6 percent 2021, provided COVID-19 peters out quickly. The labor market ended 2019 averaging almost 180,000 jobs added to the economy per month and with the unemployment rate well below the Fed’s measure of full employment at 3.5 percent. Wage growth trended higher in 2019 but appears to have leveled off for now. Low rates and a strong job market have helped household balance sheets and supported consumer spending, along with continued improvement in mortgage performance. As the unemployment rate has reached historically low levels, and with overall economic growth slowing, we expect monthly payroll growth to slow and the unemployment rate to drift higher. Job openings have fallen dramatically over the past few months and companies have been pulling back on their capital investment and hiring plans, as the manufacturing sector remains weak, and the global outlook has darkened.

Even with slowing economic growth, we still hold to the view that conditions are supportive for home‐purchase activity, as there have been signs of housing inventory recovery as new construction has picked up and increased purchase activity in early 2020. However, it is possible that some of this was driven by mild winter weather in parts of the country. We still expect gradual growth in home sales and purchase originations in 2020, especially as more people self-isolate and become dissatisfied with their current housing situation.