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Do Current Mortgage Rates Mean it’s an Ideal Time to Buy?

Updated: Jun 10, 2020

In spite of what you may think, the outbreak of COVID-19 and the impact that it has had on the economy might make now a surprisingly good time to purchase Real Estate. According to data collected by Freddie Mac (who started tracking mortgage rates in 1971), current 30-year fixed mortgage rates are sitting at 3.33%. Although the rates have stabilized slightly in the past few weeks, this is still an all-time low rate, making it an advantageous time to apply for a mortgage.

The outbreak of a worldwide pandemic and the subsequent volatility of the economy may appear to be an awful time to make an investment risk. Hundreds of thousands of Americans have experienced financial instability or total job loss as a result of the Coronavirus outbreak. This begs the question; why is now a good time to buy? When you break down the numbers, it’s easy to see why people are taking advantage of these rapidly falling interest rates. If you plug $250,000 into a mortgage calculator and drop the interest rate a quarter of a point, from 3.75% to 3.5%, the results show savings of almost $12,000 across the lifetime of the loan. That’s a huge amount of money and a prime example of why buyers and homeowners are choosing to take advantage of the current market climate.

Some of the lowest mortgage rates in 50 years have caused a spike in potential buyers, with more people applying for mortgages at once than at any other given time in the past seven years. Although it may seem illogical to consider purchasing real estate during an economic crisis, the data appears to be showing otherwise, with total mortgage applications increasing by 7.3% during the first week of April. There has also been a flood of applications from current homeowners to refinance their homes, with the numbers going up by over 100 percent in some areas of the country. The current state of the economy and efforts from the government to slash interest rates in order to keep buyers in the market appears to be working, driving people to continue to apply for mortgages and make offers on homes.

According to Mike Fratantoni, Chief Economist for the Mortgage Bankers Association, there is a possibility of the housing market “staying worse for longer as the ripple effects from business closings, restricted in-person activity, and job losses linger, before a steep bounce back beginning later in 2021.” This essentially means that the remainder of 2020 could be a surprisingly good time to invest in property and take advantage of continued lower mortgage rates.

Peggy Zabakolas, a broker with Nest Seekers International, said that with the massive layoffs that have already occurred and more that may still occur before this pandemic has passed, there may be a lot of houses coming on the market this year, and we may see a buyer's market in the next few months. "If you have the cash on hand and a flexible timeline on closing, all the stars may be aligned for you to make a purchase. If you have the required down payment and solid job security, there’s no reason you shouldn’t take advantage of low mortgage rates," she says.

While interest rates that are dipping below 3.5% may be tempting, if you’ve taken a blow from the hardships imposed by the coronavirus pandemic, it may not be a good time to consider purchasing real estate. However, if you are financially stable and are fortunate enough to still be working there are benefits in capitalizing on historically low rates. The climate of the current housing market may be particularly beneficial for first-time homebuyers, who won’t have to deal with the added disadvantage of trying to sell their current home.

All that being said, there are important things to think about if considering purchasing real estate now or in the near future. The first and most significant consideration is the delay of purchase due to related components (such as social distancing and business closures) that affect a real estate transaction. Government orders to cease operations of non-essential businesses may make essential steps like appraisals a much more complicated process. Home appraisals have been deemed essential in many states since people still need to buy and sell homes, but not every state has done so, and some sellers are reluctant to allow an appraiser into their home if they are still living there.

When speaking to Stephen Lascher, the sales manager and founding member of the Wells Fargo Private Mortgage Banking team in New York, regarding appraisals, he said “As we all know the appraisal process is a key component to what we do, especially as lenders because that’s the collateral that we are taking to lend against. Unfortunately, with current circumstances, being very cognizant of the health and safety of both the real estate brokers, the buyers, the sellers, the appraisers that we have on staff, Wells Fargo has made the determination that we will not do any interior appraisal inspections. With the exclusion that we would do an interior inspection if it is a new development property that has not yet been occupied. Now as an alternative to that, I think we have come up with a very appropriate solution, as many lenders have, and that is that we will accept exterior appraisals on everything else essentially. An exterior appraisal is simply that the appraiser does not need to gain interior access to the unit, that we use your listing photos to complete the appraisal.” Other lenders have waived appraisals, and have even allowed the final closing paperwork to be signed on the hood of separate cars. It would be wise to consider these delays as well as other factors, such as whether or not your current living situation will allow you some flexibility should your closing date be delayed.

“Just know that virtual closings, in general, are still a work in progress. There are significant concerns about fraud that could take place, multiple loans that could actually close, if a borrower were to close on a transaction we hadn’t recorded our lien and that we could close on another loan and now two lenders may have funded on the same transaction. So there are some concerns about the virtual process,” said Stephen Lascher.

If you end up being unable to finish closing because of shutdowns, you can ask your agent to negotiate an extension with the other party and ask your lender to give your offer an extension; getting an extension from your lender will allow you to keep your mortgage rate locked in. If you do not get an extension and your offer expires before closing, you will lose the mortgage rate your lender locked in, so it is important to be mindful of this. While you may have to wait a few weeks, you will still end up being able to buy or sell the home when things are back up and running again.

If, however, the considerations of purchasing real estate during these unstable times are carefully deliberated and weighed, there certainly are advantages you will see in relation to historically low interest rates, particularly if you are a first-time homebuyer. Weigh the pros and cons of the market and economy carefully and examine your situation on an individual basis. If the stars align and property purchase is a realistic possibility, real estate investment may be the silver lining of the Coronavirus pandemic.

If you are considering purchasing Real Estate and have questions about buying in the current climate, you can visit our recent blog post, Frequently Asked Real Estate Questions, for more information.

1 comment

1 Comment

PHX Homeloan
PHX Homeloan
Oct 06, 2022

You might be glancing at the mortgage rate statistics for the past few weeks on the housing market and not find numbers that suffice your budget. Thankfully, there are ways you can decrease your percentage and get the mortgage payment your family can afford for their lifetime happiness.

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