Encouraging news from the coronavirus front lines has sent mortgage rates soaring.
On Monday, drugmaker Pfizer said its COVID-19 vaccine may be 90% effective at preventing the illness, raising hopes that the world economy is one step closer to returning to normal.
But that breakthrough is looking costly for borrowers who have enjoyed historically low mortgage rates since the pandemic began in March. A daily survey shows rates have jumped this week as the interest on Treasury bonds has shot higher.
Experts say the spike in mortgage rates shows just how responsive they can be to coronavirus-related developments.
But even with the latest increases, mortgage rates remain a steal for borrowers. Prospective homebuyers, and homeowners looking to refinance their existing mortgages, can still lock in remarkably low rates before they rise higher.
Good news for economy, bad news for rates
Pfizer’s announcement on Monday marks an early step on the long road to approving, and eventually distributing, a vaccine.
Though there's a lot of work to be done, investors pounced on the news anyway.
Markets rallied, with the Dow Jones Industrial Average climbing more than 800 points. The optimism on Wall Street also pushed the yield on the 10-year Treasury note to its highest level since March.
“[The] encouraging vaccine news and more certainty surrounding the outcome of U.S. elections combined to push bond yields strongly upward, and mortgage rates followed suit,” says Matthew Speakman, an economist with Zillow.
The average for a 30-year fixed-rate mortgage rose Monday and Tuesday and is now at 3.01%, according to Mortgage News Daily’s survey of lenders. That’s after rates settled at an average 2.89% on Friday, ahead of the Pfizer news.
Last week, a different, weekly survey from mortgage giant Freddie Mac put the rates on home loans at record lows for the 12th time since the pandemic began.
Virus will continue to stifle rebound
Rates had been sinking while investors tensely awaited the outcome of the presidential election, which was called for Joe Biden on Saturday.
But though they've gone up this week, mortgage rates are still at levels that would have seemed unbelievable not long ago. Last year at this time, 30-year rates were averaging a steeper 3.86%, Mortgage News Daily says.
And don’t expect the economy to get back to normal just yet — which means the Federal Reserve is likely to keep supporting ultra-low mortgage rates.
Big portions of the economy (think: entertainment, leisure and hospitality) won’t recover until the virus has been properly corralled, says Zillow’s Speakman.