Coronavirus & the Mortgage Industry: The Impact of Epidemics on the Mortgage Market

As concern about coronavirus (COVID-19) spreads across the globe, markets are already reacting to its real and perceived threats to economic growth.

In the past few weeks, US Treasury yields have plummeted as investors flock to the “so-called safe haven assets amid fears that coronavirus will slow global growth.”

On Tuesday, the yield on 30-year US Treasury bonds remained at 1.8%, a record low, as the 10-year yield fell to 1.37%, its lowest since 2012.

This has pushed interest rates down for the mortgage market, with the average rate for 30-year fixed rate mortgage at 3.34% this week, down from 3.42% last week and nearing an eight-year low.

As Mark Hamrick, senior economic analyst at Bankrate predicts, even lower rates for potential homebuyers (or homeowners looking to refi) could help drive the ‘already-hot’ housing market:

The lower rates spurred by the epidemic are only going to help contribute in the near term, as long as the coronavirus doesn’t have a major impact on the broader economy or buyers’ willingness to go out and look at homes, Hamrick said.”

And while low mortgage rates may have lenders celebrating now, the economic impact of the coronavirus on the mortgage market may prove to be less rosy in the months to come.


Coronavirus: Details & Forecasts


Before we dive into the potential impact of the coronavirus on the mortgage market, let’s consider the coronavirus in relation to one of the more recent global health crises: the SARS outbreak in 2002.

While our understanding of the economic impact of health epidemics is limited at best, the SARS outbreak that chilled the global economy from 2002 to 2003 is our best case study as to how the coronavirus may impact the global economy. The SARS epidemic, which consisted of 8,098 infections and 774 deaths worldwide, is estimated to have done about $50 billion in damage to the global economy.

With the coronavirus death toll approaching 3,000 this week with more than 80,000 confirmed cases globally, history would indicate that the economic impact of the coronavirus may be more severe than initially projected. To make matters worse, China accounted for about 4% of global GDP in 2003; today, that share has grown to about 17%.

Danielle Hale, chief economist at, notes:

“There have been periods when it seemed that the virus might be relatively contained as with the SARS outbreak many years ago. New information suggests that COVID-19 may be more easily spread and thus will have more wide-spread impacts. But we are still learning, and as we learn more, markets will adjust to price-in this new information.”

A report by Oxford Economics claims that “an international health crisis like coronavirus could be enough to win out more than $1T from the global GDP.”


Coronavirus and the US Economy


As Rob Chrisman astutely explained in “How Epidemics Impact Lending” for STRATMOR Group earlier this month, all forms of travel, manufacturing, and trade with China have already slowed in the first two months of 2020, with supply chain disruption posing perhaps the most damaging threat to both the US economy and global GDP writ large.

Supply chain disruptions will hurt US economic growth with effects unevenly distributed throughout the country, most notably in the computer and electronics, industrial machinery, and automotive sectors. The Western US may be most heavily impacted with its reliance on China for the computer and electronics industries. The manufacturing industries in the Midwest and South also rely heavily on inputs from China.

Even manufacturers in the Pacific Northwest, Midwest, and Southeast that do not rely as heavily on imports directly from China will still be negatively impacted, as China plays such a large role in the global supply chain.

Additionally, weaker demand in China may reduce crude oil prices, causing oil-producing states in the US to tighten their purse strings. A further reduction in already-dwindling oil and gas capital investments would force many operators to cut capital spending and manufacturers across the US with ties to the energy sector would feel the pain from these cutbacks.


Coronavirus and the Mortgage Market


These larger economic factors pose a threat to the housing market, in spite of the short-term benefits lenders are currently experiencing.

In the short-term, falling rates may seem like a blessing to mortgage professionals. “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 on Monday.

But, as Graham points out:

“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. 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.”

As long-term bond rates sink below short-term bond rates (also known as an inverted yield curve), banks are forced to offer depositors higher short-term deposit rates than they can charge on long-term business loans, which loses them money and means they’re at risk that some loans will default.

As a result, if the coronavirus continues to spread, banks may reduce or stop lending, which makes continued economic expansion markedly more difficult. The more the dominoes fall and the US economy slows as a result of the coronavirus, the more the mortgage market will be suppressed.



Beyond the domestic scope, China’s role in the US housing market is also worth mentioning.

Chinese investors have played a large role in propping up the US housing market over the last few years; according to, Chinese buyers contributed $13.4 billion to the US housing market from April 2018 to May 2019.

But this was already a reduction from the previous year, when Chinese investors pumped more than $30 billion into the US housing market during that same period.

The US’s trade war with China, coupled with tightened Chinese regulations to control the outflow of investments in the country, have already caused Chinese investors to pull back from the housing market. The continued spread of the coronavirus could put further pressure on the US housing market in spite of low interest rates as Chinese investment in the market continue to dwindle.

As’s chief economist Danielle Hale explains:

“You have less incentive to buy real estate if it’s unclear if and when you’ll get to visit the property. In the short term, the virus could dampen luxury sales further.”

Chinese investors are already backing out of deals in the US. As a broker at Douglas Elliman Real Estate told MarketWatch:

“There’s a lot of uncertainty and fear. I was supposed to meet some groups of Chinese investors in March and April. At the moment, I don’t think they’re able to travel.”

As of early February, the Wall Street Journal reported that the Chinese real estate market had already plummeted 90% since the outbreak of the virus.

Given that Chines buyers reportedly account for 20% of foreign home buyers in the US, the decline in Chinese investments could markedly hinder the mortgage market as the impact of the coronavirus continues to be felt.

Ultimately, while a low-rate environment and low inventories have been favorable to mortgage lenders thus far in 2020, the coronavirus epidemic poses a big threat that could cause the US housing market to suffer as the reverberations of coronavirus are felt throughout global markets.




Concerned about a potential economic slowdown? Check out our quick guide, How Lenders Can Prepare for an Economic Recession.


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