Historically, the stock market experiences a downturn in market performance during an infectious outbreak (ie: SARS, avian flu, ebola). Why? Well, because many investors begin to look towards bonds as a safer investment. The higher demand for bonds means a decrease in yield.
How does a decrease in bond yields affect our mortgage interest rates? Well, bond yields and fixed mortgage interest rates have a direct correlation. As bond yields decrease, so do fixed mortgage interest rates. This leads back to the bank spread: the difference in interest from what the bank pays a depositor, and what the bank charges a borrower. The bank spread is how much the bank earns.
Although the stock market has proven to be able to gain and perform again in a 12 month period from previous outbreaks, the severity of the virus is what will dictate the market. If the downward trend continues for bond yields and fixed mortgage interest rates, we may see a busier start to the Spring market as buyers take advantage of lower interest rates.
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