Feb. 29, 2020, 8:15 a.m. EST

Mortgage rates fall to three-year low amid coronavirus fears — here’s why they may not hit an all-time low

Mortgage rates usually follow the direction of the 10-year Treasury note’s yield, which dropped to the lowest level ever recorded as more cases of COVID-19 emerged outside China

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By Jacob Passy


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Mortgage rates dropped back to a three-year low, extending the possibility of major savings for Americans who choose to refinance their home loans.

Mortgage rates dropped once again to the lowest level since October 2016, as investors fretted over the threat posed by the outbreak of the COVID-19 coronavirus.

The 30-year fixed-rate mortgage averaged 3.45% during the week ending Feb. 27, a decrease of four basis points from the previous week, Freddie Mac /zigman2/quotes/202741363/delayed FMCC +2.45%  reported Thursday.

The 30-year fixed-rate mortgage hit its all-time low back in November 2012 in the wake of the recession, when the average rate fell to 3.31%.

The 15-year fixed-rate mortgage also dropped four basis points to 2.95%, according to Freddie Mac. The 5/1 adjustable-rate mortgage slipped five basis points to an average of 3.2%.

Don’t miss: As mortgage rates remain near three-year lows, here are 5 questions to ask yourself before you refinance your mortgage

The previous two weeks, mortgage rates had rebounded after dropping to the lowest level since October 2016. That’s because mortgage rates generally follow the direction of the 10-year Treasury note’s yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -3.50% .

The 10-year note had rebounded prior to this week as investors sensed that efforts to contain the coronavirus seemed successful. However, in recent days a large number of new cases emerged outside of China across the globe, including in Italy, South Korea and Iran. With many of these cases, it was unknown how the individuals had contracted the virus, suggesting that “community spread” of the illness is occurring outside of China.

‘Lenders tend not to keep up with volatile movement in Treasurys like those seen in the past few days, particularly with rates as low as they currently are, opting instead to quote conservative rates and wait until the storm passes.’

—Matthew Speakman, Zillow economist

This pushed Treasury yields to all-time lows, as investors sought a safe return amid turmoil in stock markets and hedged against an economic slowdown, said Danielle Hale, chief economist at Realtor.com.

However, the decline in mortgage rates was muted compared with the decline in Treasury yields, an indication of the power lenders have when it comes to setting rates.

“Generally, lenders tend not to keep up with volatile movement in Treasurys like those seen in the past few days, particularly with rates as low as they currently are, opting instead to quote conservative rates and wait until the storm passes,” said Zillow /zigman2/quotes/205077794/composite ZG +1.32%  economist Matthew Speakman.

Whether mortgage rates eventually drop to all-time lows or rebound will depend on how long the outbreak lasts, real-estate experts said.

“The longer virus concerns linger and the bigger impact economists and analysts estimate it will have on economic activity the lower we are likely to see rates go,” Hale said. “If evidence were to surface that suggests containment of the virus is improving or that the human or economic impact may not be as large as now-feared, then that would cause rates to rise.”

(Realtor.com is operated by News Corp /zigman2/quotes/201755982/composite NWSA +1.66%   subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)

Either way, Americans are taking advantage of the ultra-low interest rate environment. In the week ending Feb. 21, the number of refinance applications lenders had received was more than double the volume from a year ago, according to the most recent loan application data from the Mortgage Bankers Association, and that figure is expected to rise. “Last week appears to have been the calm before the storm,” said Mike Fratantoni, MBA’s senior vice president and chief economist.

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Jacob Passy is a personal-finance reporter for MarketWatch and is based in New York.

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