Mortgage rates fell to record lows in the first week of March. This is mainly because investors and the Federal Reserve fear an unchecked spread of the coronavirus, and the latter is looking for ways to create a stimulus.

As concerns about the effect of the virus on the global economy intensify, mortgage rates have dropped to their lowest ever according to Freddie Mac’s survey of mortgage providers, which began in 1971.

Number Speak

According to Freddie Mac, the 30-year fixed-rate mortgage stood at 3.29% in the week that ended on March 5. It fell by a significant 16 basis points from the preceding week when the interest rate was 3.45%. Around the same time last year, the interest rate was 4.41%. The previous record low was 3.31%, in November 2012, when the country was firmly gripped in recession. To put the existing interest rate further into perspective, the 30-year fixed-rate average was 8.15% at the turn of the last century.

The 15-year fixed-rate mortgage also experienced a fall of 16 basis points, dropping to 2.79%. However, the 5/1 adjustable-rate mortgage averaged at 3.18%, with a drop of just two basis points.

While the 10-year Treasury’s downward trend is evident by the recent drop in mortgage rates, it appears that the spread between the two is widening to some degree. Lenders, after all, have different reasons for not wanting to reduce rates rapidly. For instance, maintaining their margins remains crucial, and reducing rates would well eat into their profits.

The Lack of Homes

Even with the rates currently on offer in the market, getting a mortgage may work well for prospective home buyers. A problem, though, is that they need to find suitable homes.

A recent report shows that the inventory of homes for sale fell by 14% in January 2020. When it comes to homes priced below $200,000, the supply reduced by almost 20%. While a higher demand from buyers is one of the reasons for this drop in inventory, a bigger problem is that the country still hasn’t overcome the lackluster home construction activity that began during the recession.

The problem was further compounded because several investors purchased single-family homes during the downturn and converted them into rentals.

There is no doubt that there has been a revival in construction activity since the summer of 2019, but it looks like it’s not happening fast enough to meet the rising demand. Besides, if the impact of the coronavirus on the economy worsens to a point where it affects the job market, the housing market might not be able to hold its own.

How Will Existing Conditions Affect Buyers and Sellers?

Opinion surrounding whether or not the drop in interest rates will encourage some homeowners to sell their homes is divided. This is because many people who have existing mortgages feel they are rate-locked. This means that the interest rate on their mortgage is so low, that it works as a deterrent when it comes to selling their homes and buying new ones.

The decision of a homeowner to sell a home is usually based on major life events, such as having children, retiring, or simply wanting to downsize. As a result, people who wish to sell their homes may well move forward with the process.

The overall state of the country’s economy might prevent some prospective home buyers from taking advantage of the existing low-interest-rate atmosphere. If the spread of the coronavirus affects the economy significantly, buyers might feel jittery and back out despite the probable savings. Given that buying a home is among the most important decisions people make in their lives, it is only normal to be cautious, or even nervous.

If interest rates fall below their existing record lows, borrowers may expect delays in getting mortgages. With lenders receiving more than usual applications, longer turnaround times might become the norm. Borrowers can do their part in the smooth sailing of their applications by keeping all the required documents in order.