Mortgage rates change based on factors that logically impact financial markets. However, it’s also common for something as disconnected to mortgages as the Coronavirus to move rates too.
2020 is thus far a winning streak for mortgage rates. However, something obscure now adds more downward pressure on home loan rates making for a historically low rate environment. Much like the Soy Bean impact on rates we covered a while back, this too is a rate dropping force many didn’t see coming.
The Coronavirus has not only spread into more regions across the globe, it has crept into the realm of international finance. Despite how unlikely it first appears, the virus is directing traffic on Wall Street in a significant way.
Coronavirus & Wall Street
The economy of today is undoubtedly a globally tethered one. Due to the interweaving dependent connections of complex economies across the globe – what impacts one usually somehow impacts them all.
The spread of the virus into Italy now makes this a European issue and possibly a global issue that could upset the supply chain for months or years to comeKevin Giddis, CFIS Raymond James
The rapidly spreading Coronavirus has given birth to contagious health concerns in many cities. So much so that meaningful portions of the global supply chain have literally shut down. For example:
- 4 of the worlds top 12 economies scrambling to contain virus
- South Korea shut down public buildings, schools & sports events in the industrial area of the Country
Global Scares & US Mortgage Rates
To understand the Cornoavirus’ impact on our home loan rates, first consider how Countries rely on each other. For example, South Korea provides many other nations with cars, machinery and electronic goods. In addition both Japan and China play major roles in the supply chain for many different industries around the world.
Next, consider that investing in stock is analogous to betting a company or on the broader scope that an economy will grow. When investors sense risk to that investment they see potential for the stock’s value and their capital vanishing.
Run for Shelter When Stocks are Falling
Investors seek safety from risk and uncertainty. The ultra low return yet virtually no risk bond market provides safety. It’s a shelter from the storm. While things get rough on the high seas, investor’s make sluggish gains in the bond market which beats rapidly losing gobs of cash in an unstable stock market that is fearing global impacts of the Coronavirus.
Finally, when demand and cash both flow from stocks into bonds during a cycle known as a “flight to quality” – bond prices increase. Increased bond prices lead to lower home loan rates. Often, times this scenario is paradoxical. On one hand something not so great is happening while on the other interest rates drop.
In conclusion, the Coronavirus and those imapcted are the most important. An end cannot come too quickly. While we can’t predict these polarized situations, it’s important to learn how they impact financial markets and more specifically home loan interest rates here in the US.