May the Omicron variant trigger mortgage charges to fall once more?

News about the Omicron variant spread could lower mortgage rates at a time when buyers were prepared for an increase in their home purchase costs, analysts said Monday.

"Much is still unclear about the effects of the Omicron variant, but we do not anticipate any significant effects on the real estate market at the moment," said Jeff Tucker, Zillow's senior economist. "Depending on the course of the virus, there may be temporary effects on mortgage rates, as was the case when the delta variant emerged."

However, another spike in COVID-19 cases could cloud the outlook for economic growth, which in turn would likely slow the recent rise in mortgage rates, Tucker continued.

When news of the spread of the variant prompted the US, among others, to restrict travel from countries in southern Africa, investors made an initial "escape to quality" by putting money in the bond market, which is the 10-year yield Treasury, a benchmark for the 30-year fixed-rate mortgage. It closed at 1.645% on November 24th but opened at 1.528% the next trading day, November 26th. On November 26th, it fell further to 1.482% as trading ended.

On November 29th at 9:30 a.m., the 10-year yield rose again to 1.564%, but turned again and hit a low of 1.510% around noon. At 4 p.m. it was 1.521%.

Last Friday's decline in 10-year yield had an immediate impact on the values ​​of “at the money” mortgage servicing rights of nearly 5 basis points, said Tom Piercy, managing director of Incenter Mortgage Advisors. Today's rebound in returns as fears subside has regained some of that depreciation.

"We expect a sustained rebound with a sell-off on Friday as the employment number comes out and that number is expected to be strong," Piercy continued. "That being said, any news about the Omicron variant that comes out negative will result in markets reacting the way they did last Friday."

Omicron's public appearance comes at a time when living conditions remain hot. Home sales outstanding in October rose 7.5% from September, according to the National Association of Realtors. Activity of the Month shows that 2021 will be the best year for existing home sales in 15 years.

Meanwhile, competition, possibly fueled by concerns about inflation, drove house prices 15% year-over-year to $ 359,975 in the four-week period ended November 21, Redfin said.

“Home demand remains high as millennials work more from home and provide more geographic flexibility to potential homebuyers in an era when the new normal includes more opportunities to work from home, leading to further demand leads to home ownership, ”said Odeta Kushi, assistant chief economist, First American Financial. "If the Omicron variant doesn't lead to further lockdowns and quarantines, a drop in mortgage rates attributable to government bonds by a herd would only fuel the fire in housing demand."

If anything, the market is likely to be overreacting, said Louis Navellier, chief investment officer of wealth management firm Navellier and Co., in a report to investors. "I don't think that's a big deal. Hopefully we'll recover and we've exaggerated."

People all over the world put their money in the US because the economies of other nations face problems of their own.

"It's that simple," said Navellier. "And government bond yields are remarkably good."

By comparison, in March 2020, when COVID-19-related closings began to affect the US economy, the non-compliant secondary market nearly closed. This forced Impac Mortgage Holdings to cease operations; The company only resumed lending towards the end of the second quarter of 2020.

Since then, however, not only has the market for unskilled mortgage / private label securitisations recovered, but activity is now back at the level of 2019. “Investors have seen how these loans develop over the past year and a half said Allen Meigide, Executive Director at LoanScorecard. "This time we expect that the investor community is ready and will continue to support non-QM production."

House sales in April 2020 were affected by the shutdown, but not as bad as expected. Mortgage rates, which fell to an all-time low, also contributed to this.

Today it looks different for the market.

"We're obviously watching how this plays out, it's still early days to speculate how this might play out," said Kevin Parra, CEO and Co-President of Plaza Home Mortgage. "One thing that's different this time around is that investors and warehouse lenders have seen this before and will likely be more relaxed."

Potential buyers have not yet shied away.

"We're not seeing any unusual slowdowns due to the advent of the Omicron variant other than the normal slowdown that occurs annually in the real estate market around Christmas time," said Vice President and General Manager Michael Lane of ShowingTime, a company now owned by Zillow tracks the average number of appointments received for active real estate listings. "The initial slowdown from COVID-19 has been severe, but the industry has shown great resilience to this tremendous challenge."

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