In these recent times of uncertainty, you may find yourself asking how the Novel Coronavirus has impacted the housing market, and what changes you can expect to see. We are here to give you some insight by answering four of the biggest questions in this four-part blog involving what has happened to the housing market, and what we can expect to see in the months and years to come. Now more than ever it’s important to stay informed on what’s occuring in the county, and we hope this series will provide you with the necessary information that you need.
The first biggest question you may be asking yourself, is what are people doing with their money, and what does it mean for housing?
To start off, it’s important to look at the relationship between the 30-year mortgage rate and 10-year treasury rate. For almost 50 years, the two rates have moved in unison with one another, with the 10-year treasury rate often being used to predict the foreseen mortgage rate.
As seen in the graph above, the two have held a symbiotic relationship of the past several decades. What you may now notice, is that this relationship has recently changed. This change can be attributed to several other factors such as money coming out of the stock market and into bonds. While treasury rates have seen a recent decline, mortgage rates have not followed in the same trend. In fact, what we are seeing right now is volatility in the market as pricing is going back and forth intraday.
In a quote from First American, “As evidenced by recent events, often the spread increases because mortgage refinance application processing capacity cannot meet demand, so lender-offered rates don’t follow the Treasury yield down one for one. So, while the mortgage rate has declined in response to the decline in yields, it is unlikely to fall by the same magnitude as the Treasury yield…
It is plausible that mortgage rates fall further if the benchmark 10-year Treasury bonds yield decline further…
It’s reasonable to expect that rates will fall even further and likely surpass the prior record low, but not necessarily one-for-one with the 10-year Treasury yield.” – Odeta Kushi, Deputy Chief Economist, First American.
In the graph below, we can look at the rate environment over the last year to better illustrate the flow of the 30-year mortgage rate going forward.
With all the volatility we’re seeing in the market right now being different than we’ve ever seen, we should look to the 10-year treasury as a way to judge what to expect in the future.