COVID-19 Sends Mortgage Rates Lower, But Will It Be Enough?

Home buyers will get a boost after the Federal Reserve slashed its benchmark interest rate, but uncertainty could prevail.

The Federal Reserve’s decision to slash its benchmark interest rate to near zero could bring mortgage rates to new lows, though that may not be enough to shield the luxury housing market from growing economic uncertainty.

The Fed announced the rate cut on Sunday in addition to a new round of quantitative easing meant to guard the economy from slipping into recession and keep credit flowing to businesses and consumers. Low interest rates have for months—long before the first case of COVID-19, the novel coronavirus, was detected in China—fueled luxury home sales, with the number of $1 million-plus deals nationwide rising in the second half of 2019.

But even lower interest rates might not be enough to sustain growth as extreme volatility in the stock market hits affluent Americans and widespread calls for social distancing dissuade sellers from listing homes and buyers from attending open houses.

“Lower rates will sustain the higher demand for refinances and may entice home buyers out to shop as well,” said Danielle Hale, chief economist at realtor.com, in comments on Monday. “However, the Fed is acting because the path ahead for the economy is uncertain, and the housing market could be impacted directly and indirectly.”

The Fed’s decision on Monday follows a rate cut earlier this month that spawned a deluge of mortgage activity. Last week, U.S. mortgage applications, including refinances and purchase originations, were up 55.4% compared to the prior week in response to historically low mortgage rates, according to the Mortgage Bankers Association.

The average rate on a jumbo 30-year-fixed mortgage, the typical loan for a property worth $1 million or more, is now close to a percentage point lower than a year ago, at 3.68% as of Monday, according to data from Bankrate.com.

“Amidst the chaos, this is clearly a tremendous opportunity for the buyer in any market,” said Wendy Arriz, a Manhattan-based broker with Warburg Realty. “For those with a cool head and financial resources, in a market with record-low interest rates, now is a great time to buy.”

But a cool head may be harder to come by as many Americans woke up to unprecedented uncertainty on Monday morning.

School districts across the country, including in San Francisco, Los Angeles and New York City—the nation’s biggest with more than 1 million students—closed their doors. New York planned to shutter its bars and restaurants indefinitely starting this week, churches called off services, festivals were canceled and Americans prepared to hunker down at home after the Centers for Disease Control recommended that gatherings larger than 50 people be canceled.

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