Homeowners and would-be home buyers are taking advantage of the drop in mortgage rates.
As the coronavirus spreads across the globe, the U.S. housing market is bracing for the economic fallout from the epidemic, which was first identified in Wuhan, China, on December 31, 2019. The rapidly spreading disease, named COVID-19, has contributed to projections that foreign real estate investment will plunge considerably this year. Against this backdrop, mortgage rates are falling as investors run for cover in safe-haven assets, creating a new opportunity for thousands of borrowers to cut their monthly payments or shop for new mortgages.
Danielle Hale, chief economist at realtor.com, said Chinese buyers are the largest foreign market of U.S. residential real estate. In fact, Chinese investors have been the top purchasers of American residential real estate by dollar volume for seven consecutive years. From April 2018 through March 2019 alone, Chinese buyers flexed their purchasing power by snapping up an estimated $13.4 billion worth of residential property, according to a survey by the National Association of Realtors of residential purchases from international buyers. However, that amount was down 56% from the previous year. Following China, the next top foreign buyers of U.S. homes in 2019 were Canada, India, the United Kingdom and Mexico.
“Chinese buyers have faced headwinds in recent years from capital controls in addition to the general headwinds of rising home prices,” said Hale. “The epidemic is likely to hamper their ability to participate in U.S. real estate in the short run, but it may lead to more interest in the long run as buyers may seek to be more internationally diversified.”
Florida was a magnet for foreign buyers, followed by California. Chinese home buyers have had the largest presence in California and New York markets. However, the luxury real estate market has seen Chinese buyers, who had been dominating that segment, quickly vanish from it. With concerns rising about a slowdown in China’s own debt-laden economy, the Financial Times reports that the Chinese government “imposed capital controls to clamp down on splashy overseas property deals.”
One unexpected impact from the coronavirus has been the way it has been pushing down mortgage rates in the United States.
“China is the world’s second-largest economy, with a worldwide supply chain,” realtor.com reports. “So what happens there affects businesses around the world, which then affects global financial markets. Amid market turmoil, investors tend to pull money out of the stock market and park it in safer, more stable U.S. Treasury bonds. And when bonds are strong, mortgage rates fall.”
Greg McBride, chief financial analyst for Bankrate.com, is reminding investors to take a long-term view about market volatility.
“Coronavirus fears are hitting financial markets, driving stock prices lower and bond yields to record lows as investors stampede to safety,” he said. “Don’t let short-term concerns cloud your long-term thinking and prompt you into knee-jerk reactions. Stay the course, and if you’ve been waiting for a better buying opportunity, the stock market is 3% cheaper today than it was Friday.”
McBride added that the drop in bond yields to new lows, which spurred mortgage rates to plunge, could spark a flurry of refinancing and home-buying activity.
“This blows the refinancing door wide open, particularly for borrowers that had taken out loans a year ago when mortgage rates were 4.5%,” he said. “Knocking $150 off your monthly mortgage payment creates valuable breathing room in the household budget.”
The 10-year Treasury note, a key bellwether for mortgage rates, plunged to a record low of 1.302% on Wednesday as a surge of new coronavirus cases heightened fears about the economic impact of the outbreak.
McBride said mortgage shoppers should move full steam ahead gathering documents they will need for the application process, including pay stubs, tax returns, bank statements and other vital documents so there is no delay in processing.
“Many lenders will be bottlenecked, and the applications that get worked on will be those that have all their documents submitted,” he explained.
Frank Nothaft, chief economist for data and analytic provider CoreLogic, added, “The drop in mortgage rates during the past week has improved payment affordability and will bring prospective buyers into the market. If rates stay low into the spring, we expect sales volume to be the highest in 13 years and annual home price growth to quicken.”
