(Bloomberg) -- U.S. mortgage rates fell for the first time in three weeks. But for would-be homebuyers frozen in fear of an economic meltdown, borrowing costs are no longer a prime concern.
The average rate for a 30-year fixed loan was 3.5%, down from 3.65% last week, Freddie Mac said in a statement Thursday.
Americans hunkering down in coronavirus quarantine are in no mood to shop for homes. Even if they can buy, many worry about how bad the coming recession will be, and how long it will last. A total of 3.28 million people sought unemployment benefits in the week ended March 21, the most in government data going back to 1967.
In an early sign of slipping demand, a index of applications for home-purchase loans tumbled 15% last week to its lowest level since August, according to the Mortgage Bankers Association.
Home sales are going to drop, no matter what mortgage rates do, said Matthew Speakman, an economist at Zillow. Eventually, the virus will pass and loan costs will start to matter again.
“In the short term, the impact of mortgage rates on home sales has weakened due to the fact there are these shelter-in-place initiatives and consumer confidence has taken a hit,” Speakman said. “Where mortgage rates are going to help is when we find ourselves ready and in place to recover.”
Interest rates on new mortgages had stayed stubbornly high in recent weeks after a sharp drop spurred a surge of loan applications. The average for a 30-year loan had tumbled to a record-low 3.29% early this month, Freddie Mac data show.
The flood of paperwork overwhelmed some lenders, who then tried to spurn new business by refusing to answer calls from interested borrowers, cutting back on advertising, or even raising rates.
The Federal Reserve, which dropped its benchmark lending rate to near zero, has pledged to buy unlimited amounts of mortgage bonds. That move may help calm some panicked investors who seek to free up cash as Americans lose jobs and fall behind on loan payments.
“Real estate demand is softening,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “However, the combination of the Fed’s actions and pending economic stimulus will provide substantial support to the mortgage markets.”
But Jeremy Sopko, chief executive officer of Nations Lending Corp., says households are paying too much and aren’t getting the full benefit of the Fed’s efforts to lower the cost of borrowing.
Rates for traditional 30-year fixed mortgages typically follow yields on the 10-year Treasury note, but this month, the gap between the two is hovering near record highs, according to monthly data compiled by Bloomberg dating to 1998.
(Updates with jobless claims in third paragraph and comments from lender in last two paragraphs.)
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