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Will Omicron Impact Mortgage Rates?

Investors could seek a flight to safety as new variant whipsaws world markets.

Earlier this month it seemed like the worst of the COVID-19 pandemic was behind us, and housing economists were sure that rising mortgage rates were in our future.

But then came the discovery of the omicron variant, which has brought a renewed and unwelcome dose of uncertainty back to everyone’s life. 

Now, just as it’s too soon to say just how concerned we should all be about this new development, it’s unlikely those predictions will stay set in stone.

“Generally when there is economic uncertainty, there is a big 'flight to quality' where investors seek Safe Haven in more stable investments such as U.S. treasuries,” says Shmuel Shayowitz, president and chief Lending officer at Approved Funding. 

Usually, investors put their money into bonds and treasuries during uncertain times, and that investment funding tends to flow out of the stock market. 

Bonds are a safe, low-risk investment, which are attractive to people who don’t have an appetite for much uncertainty, and for investors looking for something stable in an unstable time. 

Normally, bond prices and mortgage interest rates have an inverse relationship, where higher bond prices drive down the cost of mortgage interest rates. 

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But this wasn’t generally the case last year.

“During Covid however both the bond markets and equity markets were benefiting because of Fed intervention which benefits everybody through an artificial manipulation of the market,” says Shayowitz. 

“When it was evident that the Covid pandemic reached the United States, the Federal Reserve acted aggressively," he said. "This was done through stimulus and monetary policy such as quantitative easing and aggressive bond and Treasury buying to add massive liquidity to the markets and to push rates lower.”

Last week, Federal Reserve Chairman Jerome Powell told a Congressional committee that he was considering winding down the central bank’s purchasing of bonds, as it looked like the economy was stabilizing. But that was prior to omicron's appearance.

Still, as of now, Shayowitz said he is cautious but not overly worried about the variants' effects on mortgages. 

“It is unlikely that rates will move down any further due to the new Omicron variant,” he says. 

“While there is certainly a concern especially with what's going on in other countries, right now bond analysts are optimistically cautious and do not think with the information that we are saying now that it will have any significant impact on markets," he says. "Of course that is based on what we're saying globally, as of today.”