As more reported cases of the coronavirus flood the news, investors are seeking the safe haven of bonds, which sparked a drop in yields—thus, causing mortgage rates to fall. If more investors keep piling into bonds, investors should keep an eye on fixed income ETFs as well as funds backed by mortgages.
Per a CNBC report, the average rate on a 30-year mortgage hit a high of 3.84% in December but has been declining steadily since. It’s welcome news for home buyers and current owners looking to refinance their homes, but not-so-good news for yield seekers.
“3.625% is widely available, and that was already getting to be the case last Friday,” said Matthew Graham, chief operating officer at Mortgage News Daily. “Today brings 3.5% into the mix for more than just a few of the most aggressive lenders.”
Per the CNBC report, the fall in rates “couldn’t come at a better time for the housing market, as strong demand is fueling both sales and construction of new, single-family homes. Builder sentiment hit a 20-year high in December, and while sales of newly built homes slipped slightly, they were still a strong 23% higher than December 2018.”
The demand for homes at a lower price point is putting pressure on homebuilders to produce more entry-level offerings for prospective buyers.
“Considering half of home shoppers say they can’t afford a house priced above $300,000, more builders must start reducing prices to increase sales,” said Robert Frick, corporate economist with Navy Federal Credit Union. “With housing starts surging we should see plenty more new homes on the market this year, but if they’re not more affordable, sales will be stunted, and many more newly-formed families will be shut out of homeownership.”
Investors looking to play ETFs specializing in mortgage-backed securities should consider the following funds:
- iShares MBS ETF (NasdaqGS: MBB): seeks to track the investment results of the Bloomberg Barclays U.S. MBS Index. The index measures the performance of investment-grade mortgage-backed pass-through securities (“MBS”) issued or guaranteed by U.S. government agencies.
- SPDR Portfolio Mortgage Backed Bond ETF (NYSEArca: SPMB): seeks to provide investment results that, correspond generally to the price and yield performance of the Bloomberg Barclays U.S. MBS Index. The index is designed to measure the performance of the U.S. agency mortgage pass-through segment of the U.S. investment grade bond market.
- iShares GNMA Bond ETF (NasdaqGS: GNMA): seeks to track the investment results of the Bloomberg Barclays U.S. GNMA Bond Index. The underlying index includes fixed-rate mortgage pass-through securities issued by GNMA that have 30- or 15-year maturities. The index measures the performance of mortgage-backed pass-through securities issued by GNMA.
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