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The impact of the coronavirus spread outside China is giving jitters to the entire financial markets as the average rate on the 30-year fixed mortgage has hit a low of 3.34% on Monday.
The situation in the global markets continues to exacerbate with the rising fears of the coronavirus spread. On Monday morning, Dow Jones futures and global markets plunged heavily after a sudden jump in the number of coronavirus infected cases in South Korean and Italy.
The financial markets continue to take a hit as the U.S. bond yield slide further. This has also pushed the mortgage rates to an 8-year-low as they follow the 10-year Treasury yield. Amid coronavirus, the average mortgage rate on the 30-year fixed mortgage has hit 3.34% on Monday. Note that these rates are for borrowers with strong credit scores and financials.
This is for the first time that the mortgage rates have slipped below 3.4% after the summer of 2016. Matthew Graham, chief operating officer at Mortgage News Daily said that he expects the mortgage rates to sink even lower. Speaking to CNBC, Graham said:
“Aggressive lenders will be at 3.25% today, and 3.375% will be the new going rate for the average lender”.
He also admitted that the market is currently feeling the heat of the rapid spread of coronavirus outside China. Graham stated:
“When rates fall this quickly, it’s not so much that big banks draw the line on mortgage rates, but rather, the underlying Mortgage Backed Securities (MBS) market refuses to improve as quickly as the Treasury market. Both mortgages and Treasuries are feeling the impact of coronavirus panic. That’s pushing rates lower. But mortgages also become less valuable to investors if they get paid off too quickly”.
Debt Refinancing on the Rise
As per the Mortgage Bankers Association, debt payoffs and refinances are surging right now! The Association says that there is a 165% annual surge for refinancing a home loan. Apart from retail players, even big companies are also in a similar situation.
Marseilles, the world’s third-largest shipping company plans to extend its $400 million worth of loans. Marseilles is one of the largest maritime carriers out of China. Besides, it is also negotiating with creditors to refinance bonds worth $784 million maturing next year in January 2021. Speaking to Bloomberg, Jayanth Kandalam, a credit analyst at Lucror Analytics in Singapore, said:
“Coronavirus has weakened sentiment of investors toward the credit, which was already burdened by a high debt load. A refinancing per se may be challenging in the near term unless results improve.”
On the other hand, due to the shortage of homes for sales, the mortgage applications to purchase a home aren’t so strong. Builders, who are currently putting up more affordable houses in the market, might get a boost.