Neuswanger: What the economic impact of coronavirus means for mortgage rates
As I’ve often noted in this space, mortgage rates are easily influenced by any global economic event. I recall when rates once dropped because of a surge of the price of tea in China caused fears that China’s economy would falter because the Chinese would cut other spending patterns just to be able to afford their beloved tea.
Somehow the Chinese managed to get by, but the next time someone asks “what does that have to do with the price of tea in China,” it might actually be true that the price of tea is the root of the problem at hand.
Today, however, the global economy is facing a much larger issue from China than tea. COVID-19 is perceived as a very real threat to the global economy. It’s virtually impossible to find a manufactured product that somewhere in its supply chain of coming from raw materials to the big box near you doesn’t have something from China. You can’t make a car (or computer or a pair of jeans) with 99% of the parts.
And if the genetic code of a product does not contain Chinese DNA then it likely does contain South Korean DNA, which is also seeing a large outbreak.
While over 97% of those who get the coronavirus are expected to survive, the impact on global supply chains can be dramatic when cities are quarantined, factories close and shipping of goods even drops by a few percentage points.
At least two global banks, HSBC and Standard Charter, are paring earnings expectations and cutting staff in expectations of economic impacts from slowing economic activity. Some Chinatown areas in major cities in the United States are seeing drastic drops in tourism.
If you wondered why the price of gas has dropped, it’s due to a drop in demand for oil as thousands of flights are canceled and fewer container ships are crossing the pacific. The recent stock market plunges can be attributed to fears of economic slowdowns tied to the virus.
What this means for U.S. homeowners is lower mortgage rates. When the global economy falters, investors turn to the safety of U.S. bonds. That drives down interest rates.
The nagging question is, if the economy slows and fewer people are buying homes, will the drop in interest rates offset the impact on the housing market? But for those who already own a home, this could be an opportunity to refinance and save some money.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and May be reached at 970-748-0342. He welcomes mortgage-related inquiries from readers. His web site is http://www.mtnmortgageguy.com
Chris Neuswanger is a mortgage loan originator at Macro Financial Group in Avon and may be reached at email@example.com or 970-748-0342. His web site is www.mtnmortgageguy.com.