A question that so very few can answer.
The coronavirus (COVID-19) outbreak has disturbed various industry statistics all around the world. From stock markets to hospitality, practically no business sector is safe from these effects. When it comes to U.S. real estate, COVID-19 makes its presence known through the constantly dropping coronavirus mortgage rates.
When the novel coronavirus outbreak reached the U.S., the 30-year fixed mortgage rate was floating near 3.5 percent. But since then, it has fallen to record lows. On August 6, 2020, the rate dipped to 2.88 percent, hitting another all-time low.
While the phenomenon provides aspiring homebuyers with access to more affordable loans, it creates a difficult environment for lenders. But the promise of getting a deal on new and refinanced mortgages is too tempting for buyers to pass up. This paves the way for unexplored possibilities: Will the consistent drop lead to zero mortgage rates?
Mortgage Rates Have Hit Record Lows Eight Times by Now
Recorded by Freddie Mac since 1971, the 30-year fixed-rate mortgage is the rallying point for mortgage prices. The rate has gone through various fluctuations in its nearly 50 years of history. But it has never seen changes as staggering as the ones being triggered by the novel coronavirus crisis.
Since the COVID-19 pandemic reached the U.S., the mortgage rate has hit new lows on eight separate occasions. After its August 6 low, the rate climbed up a bit to 2.96 percent in the following week. But the current market conditions indicate a further drop in these so-called coronavirus mortgage rates.
Can the Rates Hit Zero Percent In the First Place?
Technically, the answer is yes. After the Great Recession, the mortgage rates at the time fell by a total of about 3 percentage points. This change wasn’t immediate, and took place over a five-year course following the recession period. But since the existing mortgage rates were not near 3 percent, they did not hit the figure of zero percent.
Going by this comparison, it is possible for the current interest rate to hit zero by 2024. But given that mortgage rates are incredibly difficult to forecast, this remains a speculative projection only. When you factor in the calculation of mortgage rates in the U.S., this becomes an even more distant dream.
Is It Going to Be Acceptable for Lenders?
Mortgage rates are typically tied to central bank rates. When Denmark cut mortgage rates to 0.5 percent in 2019, its central bank rates were negative for five years. But the U.S. Federal Reserve doesn’t seem likely to go down this route.
Despite cutting its benchmark interest rate to near zero, the Fed doesn’t seem keen to get it in the negative. Instead, it plans to keep it there through 2022 at the very least. We also need to assess the role that long-term bond yields such as the 10-year Treasury note play for mortgage rates. Other factors such as mortgage-backed securities and investor interest also contribute to mortgage rates.
Keeping these aspects in mind, it’s highly unlikely that these coronavirus mortgage rates would drop to zero percent anytime soon. With that being said, some specialized lenders may start offering lower than usual mortgage rates in the future.