Federal Reserve Chairman Jerome Powell is warning that the economy is in for a slow and uncertain recovery from its coronavirus recession — and that "lasting damage" is a possibility.
"The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II," Powell said in a speech Wednesday. He said the government may need to give Americans more assistance — like the stimulus payments the IRS has been distributing.
The Fed chief's grim message sent the interest on the Treasury's 10-year note dropping close to its lowest level of 2020. And that's likely to help to push today's incredibly low mortgage rates even lower.
All-time-low rates on home loans have been an unusual consumer benefit during the current crisis. Mortgage rates have plunged as investors have flocked to Treasurys as a safe haven; the demand for government bonds has pushed down their yields (interest), and mortgage rates tend to follow the 10-year Treasury yield.
Low rates are helping to draw out homebuyers as states ease their COVID-19 restrictions, new data shows.
Homebuyers are hungry for low-rate mortgages
With mortgage rates looking very cheap, applications for mortgage "purchase loans" — to buy homes — surged 11% last week, the Mortgage Bankers Association, or MBA, reported on Wednesday.
"There continues to be a stark recovery in purchase applications, as most large states saw increases in activity last week," says Joel Kan, vice president of forecasting for the trade group.
New York saw a 14% jump in applications for homebuyer mortgages. Other states with double-digit percentage gains include Illinois, Florida, Georgia, California and North Carolina.
"We expect this positive purchase trend to continue — at varying rates across the country — as states gradually loosen social distancing measures, and some of the pent-up demand for housing returns in what is typically the final weeks of the spring home buying season," Kan says.
Mortgage rates remain near an all-time low in the MBA's weekly survey, averaging 3.43% last week for a 30-year fixed-rate mortgage. That was up from the previous week's record of 3.40%.
A longer-running survey from mortgage giant Freddie Mac last week put the average for 30-year mortgages at 3.26% — just slightly above a record low. Freddie Mac reports fresh data on Thursday.
Refinance demand cools
Overall mortgage applications rose 0.3% last week, the MBA says.
Requests for refinance loans fell 3%, though demand for refis was up 201% versus the same week a year ago. Put another way, applications were about triple what lenders were dealing with during late April of 2019.
Refinance applications have been running hot and cold. Homeowners have heard they can reap major refinance savings: an estimated $60 a month for every $100,000 borrowed when refinancing a mortgage taken out just last spring, according to LendingTree.
But some homeowners have been frustrated to find higher refi rates than they were expecting. Overwhelmed lenders have been upping their rates to try to slow the refinance rush.
That's an example of how lenders maintain some power over their rates — even as the yields on Treasury bonds sink and Jerome Powell and the Fed keep their benchmark interest rate close to zero.
Refinances accounted for 67% of all mortgage applications last week, down from 70% the previous week.
Google searches for 'Homes for Sale' surge
Here's one more sign that homebuyers are coming out of lockdown: Google searches for "homes for sale" have gone up sharply in the last few weeks, according to a brand-new study from LendingTree.
Searches have jumped 54% nationwide, and in some markets — including Jacksonville, Florida; Tucson, Arizona; and Rochester, New York — "homes for sale" Google searches have taken off by more than 125%.
Many people had put home-shopping on hold for the pandemic, says Tendayi Kapfidze, LendingTree's chief economist. "However, as states begin to reopen and stay-at-home orders expire, some potential homebuyers may be more eager to resume their house hunt," he says.
Super-low mortgage rates are proving to be a powerful lure, too.
To find a rock-bottom rate, you must shop around. Collect mortgage offers from at least three lenders and look at them side by side, because some lenders' rates can be much higher than what others are offering — even when surveys show average rates are at the lowest levels in history.