This week, mortgage rates hit an all-time low. Maybe you’ve heard, it’s big news. On March 5th, 2020, the national average interest rate for a 30-year fixed mortgage clocked in at 3.29%. That’s the lowest recorded rate in the almost 50 years since Freddie Mac began keeping track in 1971. It’s a momentous occasion—historic, even.
Before reaching the current low, mortgage rates began to fall during the global economic crisis of 2007-2008. Rates started 2007 well above 6% and averaged about 5% in 2008. By November 2012, they reached the previous historic low of 3.31%. After bumping back up to mid-3 and 4% in subsequent years, rates again began to drop in 2019. In a nutshell, buyers shopping for a mortgage have had it good for quite a while now.
Of course, there’s other, bigger, more somber news these days. The risk of global pandemic is wreaking economic havoc and pushing rates even lower. It goes without saying that these record-low rates aren’t exactly cause for celebration. Like the rate cuts that followed the Great Recession, today’s boon for borrowers follows another worldwide emergency. The novel coronavirus, or COVID-19, dominates the headlines. It’s impossible to avoid, and for good reason: in times like these, it’s best to stay informed.
In that vein, we thought we’d take a look at how the spring real estate market is shaping up. While we can’t predict the future, we are informed by indicators like historically low mortgage rates and the current state of the market.
Record-Low Mortgage Rates
Here’s the good news: When rates are low, both buyers and sellers win. Today’s all-time low average mortgage rates mean buyers can spend more on the principal of their loan instead of the interest. They can be approved for a larger loan, enabling them to buy “more house” with the same savings and income. Additionally, some would-be buyers who couldn’t afford to buy a San Francisco home may finally get the chance they’ve been waiting for.
- $500,000 loan at 4.29%
- Total cost of mortgage: $889,712
- Monthly payments: $2,471
- $500,000 loan at 3.29%
- Total cost of mortgage: $787,328
- Monthly payments: $2,187
As you can see, mortgage rates greatly impact both monthly payments and the total cost of a 30-year fixed-rate mortgage.
The benefits of today’s all-time low mortgage rates extend to existing homeowners and sellers as well. When more buyers are shopping with more money to spend, listings receive more interest and competition. That means better outcomes for sellers. Existing homeowners can win by refinancing. Analytics firm Black Knight recommends refinancing on any loan that’s at least 0.75% higher than the current average. There are some associated costs, but you’ll save thousands more if you can refinance to a significantly lower rate.
In a vacuum, reaching the historical low mortgage rate could be considered great for everyone. It benefits buyers, sellers and existing homeowners. But, unfortunately, there are extenuating circumstances to consider.
Enter Coronavirus: Disease and Unease
Unlike low mortgage rates, the effects of a possible global pandemic on San Francisco real estate are a bit harder to guess. What we do know is that COVID-19 is very likely to spread further throughout the country. Fears will heighten, schools may shut. The ultimate toll that the virus might take on our country’s populace is unknown, but it is expected to be significant. The economy will also take a hit, and it already has.
We also know that the San Francisco real estate market has been largely unaffected so far. Buyers and sellers who are motivated by external circumstance (ie. a new marriage, new baby, new job, death divorce, etc.) are still participating in business as usual. The most affluent sellers with who are in no real rush may elect to wait, and if the disease fizzles things may stay the same in the short and long term. If the situation gets worse, things may change..
Around the world, stock markets are plunging as business has crawled to a halt in some regions and industries. Despite lower rates, buyers whose down payments or reserves are in stock may actually have less buying power. If the virus spreads widely throughout the United States, the San Francisco real estate industry may also slow. Open house events at San Francisco homes for sale will be less populated during a pandemic. On the other hand, foreign investors are reportedly eyeing US real estate as an even safer investment than before the virus broke out. Call it a silver lining to a very grey cloud.
For now, San Francisco real estate is still chugging along. Homeowners, buyers and sellers alike can take advantage of historically low mortgage rates. Those are good things. If you’re interested in buying or selling a San Francisco home, or if you need a recommendation for a trusted San Francisco mortgage lender, let us know. We’re happy to help. Most importantly, follow the CDC’s guidelines for disease prevention, and take good care of yourself.