What a COVID-19 vaccine would mean for mortgage rates and the housing market – MarketWatch

When the coronavirus pandemic first reached U.S. shoresearlier this year, worries abounded about how it would affect the countryshousing market.

Starting in March, home sales all but ground to a halt as Americans stayed at home to avoid getting sick. All the while, mortgage rates turned lower and lower and lower. The nation saw the beginnings of a boom in refinancing activity, as homeowners welcomed the lowest interest rates on record.

A few months later, home-buying activity resumed with abandon. With low mortgage rates locked-in and a desire for more space amid the pandemic, Americans flooded the housing market in search of new homes. Even now in the fall, when home sales activity typically slows down with the cooler weather, Americans are still buying properties well ahead of last years pace.

In many ways, the pandemic has driven this home-buying craze, experts say. This has been an accelerant to lifestyle and behavior changes that were already underway, said Mark Fleming, chief economist at First American Financial Corp. FAF, -0.31%, a title insurance company. Case in point: The pandemic appears to have nudged the timeline forward for many millennial households who might have otherwise waited a few years to become homeowners.

But now, the end of the pandemic may be in sight. On Monday, the COVID-19 vaccine candidate from BioNTech BNTX, +4.08% and Pfizer PFE, +1.88% became the first to demonstrate it could protect people from contracting the illness in a Phase 3 clinical trial with a reported efficacy rate of 90%. Whats more, Pfizers vaccine candidate is taking a similar approach as some of the vaccines being developed by other companies, meaning that other vaccine candidates could hold similar promise.

While the world is still months away from seeing thedistribution of an approved vaccine, the vaccine news has improved spirits amonginvestors. But what would a COVID-19 vaccine mean for mortgage rates and thenations housing market? Heres what the experts say:

Often, economists predictions with regard to interest ratesdont pan out. Forecasting mortgage rates has been an economists foolserrand for years, Fleming said.

Back at the start of the pandemic, most economists andmortgage industry experts didnt expect rates to drop below 3%, but thats justwhat happened. In the near-term, mortgage rates are likely to stay low thoughthey may rise above the record lows they have hit in recent weeks. Thatsbecause the Federal Reserve has indicated that it doesnt plan to hike ratessoon.

In time though, a vaccine would naturally cause rates to rise. It should push overall interest rates up because it improves prospects for economic growth, said Danielle Hale, chief economist at Realtor.com.

Indeed, the news regarding Pfizers vaccine candidate caused the average rate for the 30-year fixed-rate mortgage to rise six basis points from a record low set the week prior.

As life returns to normal or something close to it peoplewill start going to restaurants, going shopping, taking vacations and all theother activities that stimulate the nations economy. That improved outlookwould then be reflected in higher yields on Treasury notes and other long-termbonds, which would in turn give lift to mortgage rates.

As of early November, there were roughly 18.5 million homeowners who could stand to shave at least 0.75% off their mortgage rate by refinancing and who met underwriting standards, according to estimates from mortgage analytics firm Black Knight. Thats up some 10.4 million homeowners from a year ago.

Already 2020 is on track to be one of the best years ever interms of the number of Americans who refinanced their home loans. But if ratesdo rise, the number of people who would benefit would shrink.

Nevertheless, the mortgage industry remains optimistic aboutrefinancing activity in large part because Americans have continued to spendmoney on home improvements. With people spending more time at home because ofthe pandemic, Americans have sought to turn their homes in oases. The shift toremote work has also encouraged homeowners to reconfigure their homes to createoffice set-ups.

With so many people enjoying working from home and employers seeing that it doesnt necessarily hamper productivity remote working will remain popular even after the pandemic. All the while, homeowners are funding these projects via cash-out refinances, which the flurry of rate-driven refinances this year have functionally hidden, said Jay Farner, CEO of Rocket Companies RKT, +0.25%, which owns Quicken Loans.

A lot of folks just get hung up on whether the rate is 3.5% or 3%, but to the average American that is only a difference of $50 or $60 a month, Farner told MarketWatch following his companys earnings release.

Theres always a significant portion of the population thathas a need, whether its putting in a new kitchen or adding a new office, he added.

Rising interest rates likely will create affordability concerns for some prospective home-buyers, given that home-price appreciation has picked up in pace in recent months. But that shouldnt stop the housing markets momentum, as better employment prospects could lead to more home sales in 2021, said Selma Hepp, deputy chief economist at CoreLogic CLGX, +0.49%.

Before the pandemic began and low rates pulled people into the housing market, conditions looked prime for a strong year in home sales. Housing market activity was very strong and growing heading into the pandemic, driven by demographic shifts that will endure going forward, said Matthew Speakman, an economist with Zillow ZG, -0.85%.

One of the biggest roadblocks for home-buyers of late is the short supply of homes for sale, but a vaccine could help bring more homes to the market.

Some home sellers that would have sold in a normal market decidedjust to hunker down because of COVID, Farner said. A vaccine could coax thosesellers out of the woodwork, experts argued, because they may feel saferhosting open houses and meeting to sign a contract if theyve received thevaccine.

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What a COVID-19 vaccine would mean for mortgage rates and the housing market - MarketWatch