Mortgage rates head up again, another blow to real estate market

So much for record-low mortgage rates. After hitting an all-time low two weeks ago, the average rate on a 30-year fixed-rate mortgage jumped 0.3% this week to 3.65%, the highest it’s been since mid-January.

That’s still lower than a year ago when it was 4.28%, according to Freddie Mac’s weekly survey released Thursday. But the real estate industry was hoping that record low rates would bolster demand for houses at a time when buyers are increasingly concerned about collapsing stock prices and rising joblessness caused by the coronavirus.

Not surprisingly, a survey of California Realtors found they are more pessimistic than they were a week before. In a statewide survey taken March 14 to 16, before most Bay Area counties issued shelter-in-place orders, 78% of the nearly 1,100 respondents said the coronavirus will have a negative impact on home sales, up from 53% the week before. As for home prices, 58% expected a negative impact, up from 40%. A quarter said they’re doing more virtual tours.

Also, 54% said they had clients back out from a home purchase and 45% had clients back out of a sale.

Sara Anwar, a dentist who can’t work now because of the pandemic, canceled a contract to buy a $1 million home in San Jose on Wednesday. She stands to lose her $30,000 deposit, but felt she had no choice.

“I’m on the verge of losing my job; without that monthly income I can’t pay the mortgage,” she said. “The 20% I was planning to put down was pretty much all my savings. I’m afraid to let go of that.”

In the Bay Area, open houses and broker tours have come to a halt in counties with a shelter-in-place order and many sellers are freezing their listings.

Since the beginning of March, 193 homes were listed for sale in San Francisco, but 172 went from “active” to “hold,” meaning they are no longer being marketed. Only 14 homes went from active to hold in all of January and February combined, said Jay Cheng, spokesman for the San Francisco Association of Realtors.

Those homes could still be sold — the San Francisco recorder’s office is closed but recording sales electronically — but putting them on hold freezes the number of days on the market. Some buyers shy away from homes that have lingered too long.

In San Mateo, Santa Clara, Santa Cruz, San Benito and Monterey counties, since March 1 there have been 2,224 new listings, 1,229 homes sold, 345 listings canceled and 280 withdrawn, according to MLSListings. In addition, 281 transactions fell through.

Some real estate companies that offer to buy homes outright and sell them later — known as iBuyers — have halted that activity. Redfin said on Wednesday it “will temporarily pause making offers on homes.” Zillow said it’s still doing it, for now.

In a blog post, Redfin CEO Glen Kelman said his company has canceled open houses nationwide and has stopped buying advertising to promote itself, but is still advertising customers’ houses.

Referring to the uptick in mortgage rates, he wrote, “One bullet that the government fired to help housing this week didn’t hit its mark.”

Two weeks ago, the average rate on a 30-year mortgage had dropped to 3.29%, a record low since 1971, as panic selling of stocks and panic buying of bonds sent the 10-year Treasury yield below 1% for the first time. Mortgage rates tend to follow the 10-year Treasury, but not always in lockstep.

The sharp drop in rates set off a surge of refinance applications and to control volume, some lenders raised rates such that the average ticked up to 3.36% last week.

Then came upheaval in the bond market. After hitting a record low close of 0.54% on March 9, the yield on the 10-year Treasury began climbing again as investors dumped those securities for something even safer — cash or its equivalent. That drove bond prices down and yields, which move in the opposite direction, up.

Congress “is discussing more than $1 trillion worth of stimulus.” To fund that, “the government will have to sell massive amounts of new (bonds) to an audience that is not interested in buying government paper right now at rock bottom yields,” said Keith Gumbinger, a vice president at mortgage tracking firm HSH Associations.

The Federal Reserve slashed its benchmark interest rate to near zero Sunday and said it would buy $700 billion in Treasury and mortgage-backed securities in an effort to steady the markets. But the 10-year Treasury yield settled around 1.12% Thursday, still higher than Friday.

Leslie Appleton-Young, the Realtors association chief economist, said the uptick in mortgage rates shouldn’t last long because they are higher than they normally would be given where Treasury yields are now.

Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender

Article source: https://www.sfchronicle.com/business/networth/article/Mortgage-rates-head-up-again-another-blow-to-15144304.php

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