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It might sound strange, but if you’re looking to buy a home, the coronavirus outbreak could help you out.
That’s because worries about COVID-19 are helping to drive down mortgage rates as worried investors increasingly shift to bonds, and the Federal Reserve trims interest rates to calm markets, good news for buyers who would benefit from lower monthly payments.
But just as it has disrupted other aspects of American life, fears about the coronavirus may also put a crimp in what is supposed to be a brisk spring home-buying season.
Some sellers are reportedly reluctant to host open houses because they don’t want a bunch of strangers traipsing through their homes. And some buyers say that they are putting their search on hold until they feel more certain that their jobs and savings are safe.
“We are looking to buy, but (COVID) 19 has definitely caused us to pause,” says Rob Austin, a manager at a biotechnology company in California, who says he and his wife are putting the brakes on their year long hunt for a house. “The economic uncertainty trumps the lower rates by the Fed on a 30-year mortgage.”
Mortgage applications on the rise
With the rate for a 30-year-fixed mortgage dropping to 3.73% last week, mortgage applications rose 15.1% as compared to the previous week, according to the Mortgage Bankers Association’s weekly survey.
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“The 30-year fixed rate mortgage dropped to its lowest level in more than seven years last week, amidst increasing concerns regarding the economic impact from the spread of the coronavirus, as well as the tremendous financial market volatility,” Mike Fratantoni, the association’s senior vice president and chief economist, said in a statement about the survey’s results.
Meanwhile, refinance applications rose 26% for the week ending Feb. 28 as compared to a week earlier, the MBA says.
Four days later, the Federal Reserve took the rare step of cutting its key federal fund rates by half a percentage point to a range of 1% to 1.25%. The cut was meant to quell the turmoil the coronavirus is causing to the economy and global financial markets, and could spur even more people to refinance, Fratantoni said.
House hunting could be put on hold
But anxiety could also make activity shift the other way.
“We are now at the start of the spring home-buying season,” Fratantoni said. “The next few weeks are key in whether these low mortgage rates bring in more buyers, or if economic uncertainty causes some home shoppers to temporarily delay their search.”
Rob Austin and his wife Natalia have decided to put their plans on hold.
The couple has been renting a home in Arcadia, California, where they live with their four-year-old son and 3-year-old daughter. But they’ve spent the past year trying to buy a place of their own.
“We’ve been actively scouring the listings for the last 12 months,” says Austin, adding that they’ve had searches set up on real estate sites like Zillow.
That was before the coronavirus hit.
“There’s this uncertainty in the air .. that leads you to say, what’s the rush?” Austin says, adding that even the Fed rate cut was disconcerting because it indicated that financial policymakers are nervous. “There’s no need to rush because you never know if you’re going to lose your job or what can happen.”
Mark Hamrick, senior economic analyst for Bankrate said “there’s definitely a scenario one can envision where housing activity is hurt by a slowing economy or a recession if one were to emerge. But we have yet to cross over that bridge and we’re not necessarily sure that we will.’’
Austin says that the specter of the coronavirus even made attending a recent open house uncomfortable.
“We were very cognizant not to shake hands or touch doorknobs,” he says, “so it’s been top of mind.”
Home sellers have concerns as well
Some home sellers have had similar fears.
“We’ve heard of some sellers canceling open houses because they don’t want a bunch of random people in their homes,” says Daryl Fairweather, chief economist with Redfin.
But even if the coronavirus temporarily chills the current home buying surge “I think that will be pretty short term, and may just shift some home sales activity from March, into April, May, June,” says Fairweather. “I think the stock market will recover … I don’t think the effects will be that long-lasting.”
Mortgage rates are also likely to continue to drop.
“I think it’s reasonable to assume that at least for the near term … mortgage rates ought to move lower if only to catch up with the decline in the 10-year Treasury yield,” says Hamrick, referring to the historic dip below 1% that occurred Tuesday as investors continued to feel jittery.
If the coronavirus ends up suppressing demand, Austin says he may buy a house sooner rather than later after all.
“Prices will maybe fall,” he says. “There’s always a positive in every scenario.”
Follow Charisse Jones on Twitter @charissejones
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