Coronavirus Turns Boon For US Housing: Mortgage Applications Rise

As economic uncertainty arising from the coronavirus outbreak dragged down interest rates, homebuyers are applying for mortgages at a level not seen in more than a decade. Mortgage applications for people looking to buy a house grew 55.4% from a week earlier — the highest since April 2009. According to data released on Mar 11 by the Mortgage Bankers Association or MBA's Weekly Mortgage Applications Survey for the week ending Mar 6, 2020, volume was 192% higher annually.

Mortgage refinancing applications spiked 79% from the previous week, marking the highest weekly jump since November 2008 and a 479% increase from the same week a year ago.

MBA Doubles 2020 Refinance Originations Forecast

In view of the current interest rate and economic situation, MBA has almost doubled its 2020 refinance originations forecast to $1.2 trillion. This represents a 37% boost from 2019 and the strongest refinance volume since 2012.

The group also expects total mortgage originations of $26.1 trillion this year, suggesting a more than 20% gain from 2019 volumes. Purchase originations are now estimated to rise 8.3% to $1.38 trillion.

Joel Kan, an MBA economist, said, “As lenders handle the wave in applications and manage capacity, mortgage rates will likely stabilize but remain low for now. This in turn will support borrowers looking to refinance or purchase a home this spring.”

Mortgage Rates at Multi-Year Lows

Market uncertainty induced by the outbreak led to a considerable drop in U.S. Treasury rates last week, causing the 30-year fixed mortgage rate to spiral down to a record low of 3.29%, the lowest ever recorded by Freddie Mac in a series that goes back to 1971. Declining home loan rates have driven mortgage applications, hinting at possibilities that the U.S. housing market might be able to help the economy fend off a COVID-19 recession.

Notably, in an attempt to limit the virus-inflicted economic damage in the United States, the Fed last week announced an emergency rate cut of 50 basis points to a range of 1-1.25% that is expected to help the economy achieve its maximum employment and price stability goals (read more: What Fed's Hasty Rate Cut Means for Housing Amid Corona Scare).

Low interest rates have already been pushing home sales higher. Existing home sales rose 9.6% in January to a seasonally adjusted 5.46 million from a year ago, the NAR said. This marked the second straight month of year-over-year growth. Meanwhile, sales of newly constructed single-family homes scaled a 13-year high in January.

While the broader market has been volatile amid mounting global panic over the economic impact of the virus, housing is expected to remain shielded. Presently, the economic backdrop for U.S. housing, which includes behemoths like Lennar (NYSE:LEN) , D.R. Horton (NYSE:DHI) , Toll Brothers (NYSE:TOL) , PulteGroup (NYSE:PHM) and KB Home (NYSE:KBH) , is favorable as declining interest/mortgage rates, low unemployment and increasing wages are somewhat offsetting the prevailing headwinds. Moreover, the increasing shift of millennials from their parental homes is driving demand for new homes.

Sam Khater, Freddie Mac’s chief economist, said, “Given these strong indicators in rates and sales, as well as recent increases in new construction, it’s clear the housing market continues to be a positive force for the broader economy.”

A Snapshot of Coronavirus-Induced Impediments

On the flipside, the coronavirus outbreak — which has recently been labeled a pandemic by WHO — will mostly upset U.S. real estate companies which depend on material supply from China. As China’s manufacturing output is expected to decline with factories temporarily sidelined, U.S. building product supply chains are likely to get affected. Notably, according to Richard Branch, chief economist at Dodge Data & Analytics, nearly 30% of products used in U.S. building construction are imported from China. Hence, any disruption in the supply chain may impact builders’ ability to deliver in time.

Again, according to a Goldman Sachs (NYSE:GS) forecast issued on Mar 8, the coronavirus will likely stall the U.S. economy without causing a contraction. The U.S. economic growth is expected to slow to 0.7% in the first quarter, which will mark the worst phase since the financial crisis. Eventually, it will come to a halt in the second quarter, said the group led by Jan Hatzius, the investment bank’s chief U.S. economist. Meanwhile, the third quarter will likely witness 1% growth and the fourth quarter is expected to see 2.3% growth.

Hence, any supply chain disruptions and slow economic growth may impact builders’ ability to deliver the much-needed new inventory into the U.S. housing market.

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