Could the omicron variant cause mortgage rates to plunge again?

News of the spread of the omicron variant could push mortgage rates down as buyers braced for a raise in their home buying costs, analysts said Monday.

“Much remains unclear about the impact of the omicron variant, but at this time, there is no reason to expect a substantial impact on the housing market,” said Jeff Tucker, senior economist at Zillow. “Depending on the evolution of the virus, there may be a temporary impact on mortgage rates, as was the case at the time the delta variant emerged.”

But another rise in COVID-19 cases could cloud the outlook for economic growth, which in turn would likely slow the recent rise in mortgage rates, Tucker continued.

As news of the spread of the variant prompted the United States, among others, to restrict travel from southern African countries, investors made a first “flight to quality” by placing money in the bond market, which pushed down 10-year yields. Trésor, a benchmark for the 30-year fixed mortgage. It closed at 1.645% on November 24 but opened the next trading day, November 26, at 1.528%. It fell further on November 26 to 1.482% at the end of trading.

At 9:30 a.m. on November 29, the 10-year yield climbed back to 1.564%, but turned again, hitting a low of 1.510% around noon. By 4 p.m. it was 1.521%.

Last Friday’s drop in the 10-year yield had an immediate impact on the values ​​of mortgage servicing rights “at the price” of nearly 5 basis points, said Tom Piercy, managing director of Incenter Mortgage Advisors. Today’s rebound in yield as fears eased regained some of that lost value.

“We expect a continued recovery with a massive selloff on Friday as the jobs numbers come out and the expectation is that this number will be strong,” Piercy continued. “That being said, any news of the omicron variant that looks negative will cause the markets to react again as they did last Friday.”

Omicron’s public emergence comes at a time when the habitat remains warm. Home sales pending in October increased by 7.5% compared to September, according to the National Association of Realtors. The month’s activity indicates that 2021 will be the best year for existing home sales in 15 years.

At the same time, competition, possibly motivated by inflation concerns, pushed home prices up 15% year-on-year for the four-week period ended Nov. 21 to $ 359,975, according to Redfin.

“Demand for housing remains high as millennials continue to homeownership at a time when the new standard includes more work-from-home options, giving potential buyers greater geographic flexibility, resulting in increased demand. housing, ”said Odeta Kushi, First American Financial’s deputy chief economist. “Unless the omicron variant results in further lockdowns and quarantines, a drop in mortgage rates resulting from a treasure herd would only fuel the housing demand fire.”

On the contrary, the market is probably overreacting, said Louis Navellier, chief investment officer of fund management firm Navellier and Co., in a report to investors. “I don’t think that’s a big deal. Hopefully we have recovered and over-acted.”

All over the world, people are investing their money in the United States, because the economies of other countries are facing their own problems.

“It’s that simple,” said Navellier. “And Treasury bond yields are performing remarkably well.”

By comparison, in March 2020, when closures related to COVID-19 began to affect the U.S. economy, the non-compliant secondary market virtually shut down. This forced Impac Mortgage Holdings suspend operations; the company did not start issuing loans again before towards the end of the second quarter of 2020.

However, since then not only has the market for unqualified / private label securitization loans recovered, but activity has now returned to 2019 levels. “Investors have seen how these loans have continued to perform over the course of time. the past year and a half, “said Allen Meigide, executive director of LoanScorecard. “This time around, we expect the investment community to be ready and will continue to support non-QM production.”

Although home sales in April 2020 were affected by the closure, they were not as bad as expected. And this was helped by mortgage rates starts to slide To lowest ever.

Today, it’s a different story for the market.

“We’re obviously watching how this develops, it’s still early enough to speculate on how this might play out,” said Kevin Parra, CEO and Co-Chairman of Plaza Home Mortgage. “One thing that’s different this time around is that investors and warehouse lenders have seen this before and are likely to react more calmly.”

Potential buyers have yet to back down.

“We are not seeing any unusual slowdowns due to the emergence of the omicron variant, other than the normal slowdown that occurs in the real estate market each year around the holiday season,” said vice president and general manager Michael Lane of ShowTime, a company now owned by Zillow that tracks the average number of appointments received on current real estate advertisements. “The initial slowdown due to COVID-19 was severe, but the industry has shown great resilience in the face of this enormous challenge. “

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