Rock-bottom mortgage rates cushion banks during coronavirus pandemic

A 30-year fixed mortgage can be had for 3%, about 180 basis points less than at the end of 2018

Historically low mortgage rates and a stampede from big cities into the suburbs are driving a flurry of activity in the U.S housing market, buoying U.S. banks as they weather the storm caused by COVID-19.

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Demand for home loans spiked after cuts by the Federal Reserve pushed interest rates into record-low territory, giving borrowers “enormous buying power,” Kenneth Leon, research director of industries and equities at New York-based CFRA Research, told FOX Business.

A borrower with a high credit score could now take out a 30-year fixed loan at a rate of 3 percent versus 4.8 percent back in December 2018. The muscular demand fueled by such savings is vital for the health of the U.S. economy: Spending in the sector accounted for almost 15 percent of gross domestic product in 2018.

JPMORGAN TRADING REVENUE SURGES AS CORONAVIRUS UPENDS MARKETS

The results showcase the payoff of the Fed's decision to take rates to nearly zero to stimulate the economy after lockdowns ordered to slow the spread of COVID-19 led to the sharpest economic contraction of the post-World War II era.

A spike to more than 14 percent in the country’s unemployment rate ignited concern that many borrowers would fall behind on their mortgages or avoid taking out a new one.

So far, that hasn’t happened: Instead, the pandemic has caused an exodus to the suburbs, where social-distancing is easier.

Higher home-loan demand as a result helped soften the blow of COVID-19 at JPMorgan Chase & Co., which reported revenue from mortgage fees spiked 229 percent from a year ago to $917 million.

Mortgage originations at rival Citigroup, meanwhile, soared 64 percent to $6.4 billion in North America. The unit had $48.9 billion in mortgage loans outstanding by the end of the quarter, an 8 percent increase from last year.

At Wells Fargo & Co., residential mortgage originations being held for sale rose 30 percent from a year ago to $43 billion, primarily due to lower mortgage rates.

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The three lenders are the first of the nation's biggest banks to report quarterly earnings, and their results often provide insight into the broader industry's performance.

In this case, Leon said, they show the housing market is on a “road to recovery."