As fears over the coronavirus roil global financial markets, investors are rushing to the relative safety of bonds. As a result, mortgage rates are falling. The 30-year fixed mortgage loosely follows the yield on the 10-year Treasury.
The average rate on the 30-year fixed hit a recent high in December of 3.84%, but slid steadily last week and is now falling more steeply, according to Mortgage News Daily.
"3.625% is widely available, and that was already getting to be the case last Friday," said Matthew Graham, chief operating officer at Mortgage News Daily. "Today brings 3.5% into the mix for more than just a few of the most aggressive lenders."
That is the best rate since early September, and Graham said he believes the market is "only one to two solid days away from 3.375%." That is, if market forces and global news continue to keep investors in bonds.
Falling rates couldn't come at a better time for the housing market, as strong demand is fueling both sales and construction of new, single-family homes. Builder sentiment hit a 20-year high in December, and while sales of newly built homes slipped slightly, they were still a strong 23% higher than December 2018.
Affordability is crucial for the homebuilders, as prices for existing homes are now heating up again. Builders need to put up more entry-level homes if they are going to attract more buyers. Sales of homes priced below $300 fell most sharply in December, not for lack of demand, but likely for lack of supply.
"Considering half of home shoppers say they can't afford a house priced above $300,000, more builders must start reducing prices to increase sales," said Robert Frick, corporate economist with Navy Federal Credit Union. "With housing starts surging we should see plenty more new homes on the market this year, but if they're not more affordable, sales will be stunted, and many more newly-formed families will be shut out of home ownership."
The drop in mortgage rates should not only help buyers afford today's higher price, but lower rates also help more borrowers qualify for loans.