Mortgage rates are all over the place: What it means for San Diego real estate

Even with the coronavirus taking a wrench to the economy, many San Diego housing analysts have said low mortgage rates and demand will continue to drive the housing market.

But, what happens when mortgage rates go up?

For several weeks in March, rates for a 30-year, fixed-rate mortgage fluctuated wildly — making monthly payments on an expensive San Diego County home go up or down by hundreds of dollars.

The rate was 3.37 percent on March 30, said Mortgage News Daily, but was up to 4.15 percent two weeks ago.

For now, it appears unlikely that millions of sheltered Americans are going to be shopping much for homes. Also, many have lost jobs. Still, for those trying to purchase, navigating interest rates will take some work.

Jeff Tucker, an economist with Zillow, said lenders have been overwhelmed by applications, which are almost entirely driven by refinances. He said they have responded by not advertising and even raising rates.

He said mortgage lenders could have raised rates either because they were trying to slow down the flow of customers or they were trying to make a loan that would actually be worth their while.

“Rather than burning the midnight oil, they began quoting higher and higher rates for all the folks rushing in the door,” he said.

Tucker also said lenders don’t have as much incentive to try and fight for customers with lower rates when customers are calling them nonstop.

Mortgage rates usually follow the yields on mortgage-backed securities. These bonds typically track the yield on the U.S. 10-year Treasury.

Tucker said if the 10-year Treasury yield remains under 1 percent, the secondary market for mortgages stays healthy and the backlog of applications gets processed, it is possible mortgage rates will drop again to historic lows.

“Then, you would start to expect to see mortgage lenders feel the need to compete and undercut each other and offer those really low rates to borrowers,” he said.

However, Tucker said it’s hard to predict what will happen as the world economy is changing rapidly as coronavirus spreads.

Potential homebuyers, who have kept their jobs through the pandemic, might be waiting for prices to drop. But, it isn’t clear if San Diego prices will drop significantly. So, timing a market downturn at the same time as mortgage rates fall could be difficult.

Matthew Shaver, a San Diego senior mortgage consultant with Finance of America, said the changes in rates have happened so quickly he doubts buyers could keep up.

“Rates changed so quickly that people don’t know,” he said. “They don’t get daily reports. Media will get reports at the end of a week that says rates are at an all-time low. But, two days later they have actually gone up 1 percent.”

Shaver says he is processing 33 loans at the moment but only five are for purchases and the rest are for refinances. He said he didn’t notice any change in purchase applications in the past few weeks as rates changed.

A report released March 26 by LendingTree said San Diego had the eighth largest jump in refinances in the nation out of the 50 largest cities.

The San Diego metropolitan area saw a 360 percent annual increase in refinance applications in the week ending March 5.

The Federal Reserve has said it plans to buy unlimited amounts of mortgage bonds, which is expected to calm some investor fears.

Mark Goldman, a San Diego real estate analyst and loan officer with C2 Financial Group, said closing a loan can be stressful for a lender in today’s environment.

He said lenders must verify employment, but if the person is laid off after locking in a new loan, it gets canceled. Also, he said a lot of times a borrower can be counting on rental income but that can go away quickly with possible tenants losing work.

Goldman said another concern is that mortgage servicers, companies that collect monthly mortgage payments, still have to pay investors even if borrowers are granted forbearance on loans. The Mortgage Bankers Association has written a letter, according to CNBC, to the Federal Reserve chairman requesting relief for servicers who could go bankrupt if too many Americans aren’t making payments.