Despite low mortgage rates, coronavirus is slowing the housing market

It has been a wild ride for mor tgage rates over the past month, which touched record lows, then rebounded just as fast. Low rates are typically associated with healthy housing demand and a strong market — especially now that we’ve entered home shopping season — but early signs indicate the market is slowing, according to Zillow.

As the calendar turned and the Federal Reser ve made its first of two March interest rate cuts, mor tgage rates reached record lows. This sparked a historic flurry of refinance activity, which jumped as much as 79% in a week and 479% from a year earlier, prompting the Mor tgage Bankers Association to double its forecast for refinance originations in 2020.

But mor tgage rates have jumped sharply in the days since, up a full percentage point since hitting record lows, baffling market observers as they moved counter to other measures such as Treasur y yields. Despite these recent gains, rates are still low relative to historic norms, sitting about 60 basis points lower than this time last year.

In a typical market, low mor tgage rates would be expected to continue to boost demand; the most recent reading on home sales in February was strong, suggesting that buying demand remained healthy at the star t of the year despite a historic shortage of inventory, in par t because of low mor tgage rates that make monthly payments more affordable.

But today’s market is, of course, anything but typical as some jurisdictions have mandated or recommended citizens remain at home in an ef for t to slow the spread of COVID-19. The ef fect these recent mor tgage rate movements are having on the housing market has been overshadowed by broader economic factors, and the most prominent impact may have already come to pass with the temporar y boom in refinances.

One sign of analysts’ reading of the market is Bank of America’s ratings downgrade for some of the nation’s largest homebuilders, suggesting the bank believes COVID-19 will harm consumer sentiment and slow homebuilding. If correct, that dive in consumer sentiment would presumably slow sales activity regardless of mor tgage rate movements as some would-be buyers turn down their risk tolerance and stay out of the market. Early data suggests this may be the case as real estate showings have dropped of f steeply since March 11.

Recent data on the economy at large have been less than encouraging as well, including a surge in weekly jobless claims. The Federal Housing Administration’s decision to implement a 60-day moratorium on foreclosures and evictions for many homeowners reduces the risk of a wave of foreclosures, which would likely drive down home values. There is no indication to this point that home values have been af fected by the slowdown.

“The U.S. housing market has entered truly uncharted territory, shaken by the COVID-19 pandemic and a corresponding, sharp economic contraction that has already caused millions of Americans to lose their jobs,” said Zillow economist Jeff Tucker. “Rock-bottom mor tgage rates have provided some small financial relief for homeowners and buyers, but it hasn’t been enough to avoid a slowdown. The big question at the moment is to what degree measures being taken by local, state and national legislators will help limit the number of foreclosures in the months ahead.”

More will be revealed in the coming weeks as this unprecedented situation continues to unfold, and Zillow economists will be closely monitoring each development.

Zillow, the top real estate website in the U.S., is building an on-demand real estate experience. Whether selling, buying, renting or financing, customers can turn to Zillow’s businesses to find and get into their next home with speed, cer tainty and ease.