Coronavirus fears keep rising, but on the other hand, mortgage rates are dropping which should appear would-be homebuyers and current homeowners looking to refinance. Monday’s market session that saw the Dow Jones Industrial Average fall as much as 1,000 points saw mortgage rates hit an 8-year low.
According to Mortgage News Daily, the average rate on the common 30-year fixed mortgage touched the 3.34% mark.
“Aggressive lenders will be at 3.25% today, and 3.375% will be the new going rate for the average lender,” said Matthew Graham, chief operating officer at Mortgage News Daily.
Because of the current safe haven scramble amid coronavirus fears, the 10-year yield is heading lower, which in effect, is applying downward pressure on rates. As a result, refinancing applications are up around 165% annually, according to the Mortgage Bankers Association.
“When rates fall this quickly, it’s not so much that big banks draw the line on mortgage rates, but rather, the underlying Mortgage Backed Securities (MBS) market refuses to improve as quickly as the Treasury market,” said Graham. “Both mortgages and Treasuries are feeling the impact of coronavirus panic. That’s pushing rates lower. But mortgages also become less valuable to investors if they get paid off too quickly.”
Home purchases, however, are not following the same path. A shortage of homes for sale are keeping prices high, requiring a larger down payment for prospective buyers.
“Unless you have a large down payment or unless you have a very solid amount of free cash flow that’s underwritable, and we forget about this because the Uber driver might not have income that is fungible from a mortgage lenders perspective, or the people working 3 or 4 jobs, or the contributors to CNBC who contribute to a few places, they may literally have trouble qualifying for a mortgage,” said Sean Dobson, CEO of Amherst Holdings.
Getting Real Estate ETF Exposure
Investors who want broad exposure to the real estate market via ETFs can start with the Vanguard Real Estate ETF (NYSEArca: VNQ). VNQ seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index that measures the performance of publicly traded equity REITs and other real estate-related investments. VNQ is up 7.26 percent year-to-date, according to Yahoo Finance Performance numbers.
Traders will want to keep on an eye on when playing leveraged real estate exchanged-traded funds like the Direxion Daily MSCI Real Est Bull 3X ETF (NYSEArca: DRN) and Direxion Daily MSCI Real Est Bear 3X ETF (NYSEArca: DRV).
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The MSCI US IMI Real Estate 25/50 Index (M2CXVGD) is designed to measure the performance of the large-, mid- and small capitalization segments of the U.S. equity universe that are classified in the real estate sector as per the Global Industry Classification Standard (GICS).
For more market trends, visit the ETF Trends.