Mortgage refinancing applications soar 224% as rates hit an all-time low amid coronavirus outbreak

Update: For the week of March 12, rates on the average 30-year fixed-rate mortgage rose slightly to 3.36% due to a surge in applications, according to Freddie Mac. The Federal Reserve’s decision to cut to interest rates to near zero on Sunday however could push rates even lower.

One bright spot as the coronavirus ravages the stock market?

Buying a house—or refinancing one—has never been cheaper. Indeed, at 3.29%, U.S. 30-year mortgage rates are at their lowest levels ever recorded. The rate tends to dip in disasters and times of great uncertainty as it takes nods from bond market yields. And at a time when investors are wondering whether coronavirus could slow the economy, they have piled into bonds and dragged down rates including on the 10-year treasury note that now yields 0.8%.

During the week ending Feb. 28, purchase applications were up 10% compared to the same period a year earlier, according to the Mortgage Banker’s Association. Meanwhile, applications from homeowners seeking to refinance their mortgages at the historically low rate rose about 224% compared to the year prior.

But, say experts, there may not be enough supply to meet the rising demand. “Home sales won’t be as responsive (to lower mortgage rates) as say if we had greater supply,” says Freddie Mac deputy chief economist Len Kiefer, who still expects to see a healthy 3-5% growth in home sales this year—assuming coronavirus’ impact remains contained. Kiefer says that new construction slowed dramatically following the financial crisis in 2008. As many homebuilders went bust, a shortage of skilled construction workers emerged. That has made it difficult to meet demand since.

In an earlier study, Freddie Mac estimated that the U.S. needs 3.3 million housing units to meet demand—particularly in Oregon, Colorado, California, and Florida.

“Last week was complete mayhem,” Ron Kramer, a branch manager for Fairway Independent Mortgage Corp. in Vancouver, Wash., said of the refinancing applications that have poured in recently. “We have never had to deal with something like this before.”

According to Kramer, Fairway processed some $39 billion in loans last year—or an average of $750 million a week. With rates this low, the company’s volumes were $3 billion last week alone, and mortgage companies have increased hiring to meet demand. Kramer estimates he has been working 85 to 90 hour weeks too keep up.

But what goes up must come down, and as he helps evaluate applications for the multi-trillion market, Kramer worries what the long term impact of this wave could have on the housing market. In particular, he thinks these refinancings could lead homeowners to stay in their houses longer, exacerbating the existing housing shortage.

“They are going to choose to stay in their own houses and they will renovate with the savings,” he said.

Home construction is expected to rise moderately this year according to Joel Kan, associate vice president of forecasting at the Mortgage Banker’s Association. But coronavirus could thrown all such estimates up in the air, as supply chains everywhere have been disrupted. According to a Jones Lang LaSalle estimate, anywhere between one quarter to one third of construction products in the U.S. may come from China.

“The impact of the virus is impossible to predict with certainty, but any prolonged slowdown in Chinese or global economic and manufacturing activity is likely to have significant ramifications for construction costs,” JLL analysts wrote in their United States 2020 Construction Outlook.

In the short term as well, the CEO of online real estate brokerage Redfin says brokers at the firm have seen some further tightening in Seattle, where the first U.S. coronavirus death was reported. The drop off in homebuyers and sellers has been “significant,” Glenn Kelman wrote in a post.

“It’s a tale of two markets: Buyers want [to take advantage] of the low mortgage rates, but sellers are going to have to open their house to strangers that want to tour,” he told Fortune. “Sellers are being more reticent, and that exacerbates the issue with the coronavirus.”

So far, the fear of coronavirus has not crept too deeply into other parts of the housing market, said Kelman, though some buyers have put home-buying on hold in other areas where the virus has emerged including Tampa Bay and San Antonio. But at a time when some consumers appear to be kicking into pure survival mode that verges on panic—economists and companies alike are taking things day-by-day.

“Everyone is unsure. If we thought that the housing market was in dire straights, we would say so,” Kelman says. “If we thought there was going to be a boom, we would say that.”

“But we have no idea how human beings might react,” he said.