Coronavirus Fears Drive Mortgage Rates to Record Lows
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How are coronavirus fears driving mortgage rates to record lows?
Here's your money briefing. I'm J.R. Whelan for The Wall Street Journal. Fears that the coronavirus could send the U.S. economy into recession have led the Federal Reserve to slash interest rates, which have helped push mortgage rates to record lows. And homeowners see an opportunity to refinance during an important season for the housing industry.
About 40% of home purchases take place between March and June annually. So we're really in the thick of it here.
How low are mortgage rates right now and how unusual is this drop?
But there are concerns from agents, from mortgage lenders about how much of that appetite might be curbed because of the coronavirus and how it might affect consumers.
That's Wall Street Journal reporter Orla McCaffrey. She'll tell us if home buyers can get in on the action too. That's next.
Homeowners are jamming the phone lines of lenders as historically low mortgage rates make for a prime opportunity to refinance. And Wall Street Journal reporter Orla McCaffrey joins us to explain. So Orla, how low are mortgage rates now for homeowners who want to refinance?
Mortgage rates are near an all-time low.
How are lenders managing long wait times and what does it mean for the housing season?
Last week, they hit 3.36% after they were at 3.29% the week earlier. And just to give some context, this is the lowest rates I've ever been in the 50 years since Freddie Mac started tracking mortgage rates. So it really makes borrowing costs cheaper for consumers.
So the rates have actually ticked up a bit?
Why did refinance demand surge and how did lenders respond?
Rates have ticked higher just a bit because once they hit that low of 3.29%, everyone kind of got on board and called their lender and said, hey, how can you lower my payment? I want to refinance. And that was way too much volume for lenders to handle. So now they are raising rates, kind of inflating them artificially, just so they can handle a number of refinance customers.
Now, people who want to buy a home, can they also capitalize here?
Yes. Lower interest rates means it's cheaper to borrow, so you'll be paying less over the course of a 30-year mortgage. But there also is one downside, which is that because rates are lower, it means everyone can afford more, so you will have more competition, which could drive prices up, especially for starter homes, which are in short supply.
Now, even before the outbreak began, rates had been steadily declining. What's been driving them lower?
Driving them lower has been the decline in the yield of the 10-year treasury, which often is kind of a barometer for the 30-year fixed rate mortgage.
What is the role of the 10‑year Treasury and Fed actions in lowering mortgage rates?
Because people are concerned about what the virus might do to the economy, they are buying up government bonds, which is driving down those yields and raising the prices.
Some lenders are overwhelmed by all the refinancing requests that are coming in. How are they managing the crush of customers?
So a couple of ways. The first way is just that inflation of the interest rate. So less people are tempted to call them. But I mean, waves of people are still calling them. So they'll have their staff work 16 to 18 hours.
Can homebuyers benefit from lower rates or will competition push prices up?
They will try to staff up as much as possible. Sometimes it just takes longer for loan officers to get back to you. It takes a couple of months now instead of a couple of weeks. And to make sure they don't lose the interest of the customer, they are responding, but kind of just informing the customer that our wait times will be longer and it might take a couple of months to get something processed rather than a few weeks.
This is a good burst of business for the housing industry.
It is. In one segment of the market, about 40% of home purchases take place between March and June annually. So we're really in the thick of it here. But there are concerns from agents, from mortgage lenders about how much of that appetite might be curbed because of the coronavirus and how it might affect consumers.
All right. That's Wall Street Journal reporter Orla McCaffrey with us. Orla, thanks for coming on the show.
Thanks, JR.
And that's your Money Briefing. I'm JR Whalen for The Wall Street Journal.
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Chapters
6 chapters
1
How are coronavirus fears driving mortgage rates to record lows?
0:05–0:31
2
How low are mortgage rates right now and how unusual is this drop?
0:31–1:16
3
How are lenders managing long wait times and what does it mean for the housing season?
1:16–1:35
4
Why did refinance demand surge and how did lenders respond?
1:35–2:31
5
What is the role of the 10‑year Treasury and Fed actions in lowering mortgage rates?
2:31–3:00
6
Can homebuyers benefit from lower rates or will competition push prices up?
3:00–3:53
Speakers
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