/Mortgage Rates Could Hit Record Lows Thanks to This Move

Mortgage Rates Could Hit Record Lows Thanks to This Move

Since the Federal Reserve cut interest rates to 0% to ease the crisis sparked by COVID-19, the U.S. could see mortgage rates hit record lows.

But multiple factors will prevent mortgage rates from falling to zero. 

MarketWatch reports:

The Fed announced late Sunday that it was cutting its benchmark federal funds rate by 1% to a range of 0% to 0.25%, alongside other measures meant to stimulate the nation’s economy as it takes a major hit from the coronavirus pandemic. While economists cheered the move, it caused apprehension among investors, with the Dow Jones Industrial Average DJIA, 4.570% , the S&P 500 index SPX, 5.496% and the Nasdaq COMP, 5.890% all dropping upwards of 8% in trading Monday.

In and of itself, the Fed’s rate cut won’t cause mortgage rates to fall. Because mortgages are long-term loans, their interests rates tend to track long-term bond yields rather than short-term interest rates such as the federal funds rate. The yields on the 10-year Treasury note TMUBMUSD10Y, 1.025% and the 30-year Treasury note TMUBMUSD30Y, 1.612% both fell in reaction to the stock market declines as investors fled for these government bonds, which are see as safe havens.

The ongoing turmoil caused by the COVID-19 outbreak, which had sickened nearly 175,000 people and caused 6,705 deaths as of Monday, has sent mortgage rates lower, to be sure. Nearly two weeks ago, mortgage rates hit a record low on average, according to Freddie Mac.

In the week after that though, interest rates on home loans rebounded slightly as lenders moved rates up to deal with a major influx of refinance applications and to hedge for the potential that bond yields could rise were the coronavirus situation to improve.