Wednesday, April 1, 2020 / by Damon Smith Team NashvilleHouses.com
FIRST----Home buying Season Will Shift 2 Months Behind Schedule.
The peak usually starts early spring and lasts till early fall. However, with the COVID-19 shutdown, it’s very likely this season will push further into the year and be much more packed. We’ve talked with a many agents and almost all believe this will happen for a few reasons:
- Home prices will drop
- Mortgage rates will hover around historic lows
- People will need to liquidate
A well-mixed cocktail of added demand from people who were about to buy or sell a home combined with the opportunity to buy at low prices in a shorter amount of time will lead to a much busier, healthier housing market towards the back half of the year.
SECOND--Mortgage Rates Will Not Drop as Much as You Think
Three weeks ago, the Fed dropped rates to 0 percent, while over the last two weeks the 30-year Fixed-Rate Mortgage actually went up 0.36 percent. If you’re confused, we understand. Here are the two reasons why the mortgage lender market is defying logic:
- Overload of refinance requests
- Lenders raised rates to limit demand
The Fed dropping their rates led to an influx of refinance applications. To stave off increasing demand, home mortgage lenders actually raised their rates to limit refinance activities. Right now, the application process capacity is stressed, leading to a bottleneck effect. Once the “panic refinancing” cools down, we should see a drop in mortgage rates.
However, rates will not diminish to zero like the Fed rate. There is still a risk that premium lenders must add. When you consider most lenders are not banks, but HSLs (Housing Specialty Lenders) that create up to half of the U.S. mortgage market, the likelihood of a proportionate drop is unrealistic.
Considering all of this information, there’s truly never been a better time to refinance or take out a mortgage until now. Mortgage rates are still hovering at historic lows and expect these rates to influence refinancing to continue before and during the delayed housing season.
THIRD--The Recession Will Last the Length of the Pandemic
The 40 percent correction we’ve witnessed in this yo-yoing stock market has many people experiencing similar feelings to 2008. If you do, go open your home office window and throw those feelings right out the window.This potentially coming recession is an exact result of the economic slowdown from COVID-19, and most likely nothing else. What this means is that tumbling industries like airlines, leisure, hospitality, restaurant, entertainment, and oil are structurally sound but are slowing down due to quarantine procedures. This too applies to real estate.
In 2008, toxic mortgages were sinking everything due to derivative linkings to the stock market. Today, this issue is basically nonexistent.
Wells Fargo’s CFA Darrell Cronk concluded that “the virus and oil shocks are not endemic to the financial markets but are, rather, external...we expect a recovery to gain momentum into the final quarter of the year and especially into 2021.” Add in that over 50 percent of homeowners own at least 50 percent of their home--compared to 2008 when millions of mortgages were underwater--people will not want to walk away from that value.
If anything, this situation is more similar to 9/11; a major event has temporarily deterred our day-to-day routine but will eventually pass. Fortunately, the past decade has created the longest Bull market in American history and could have kept roaring without this bump in the road.
FOURTH--The Government Will Provide Unprecedented Help
Whether it’s Pelosi’s coronavirus aid bill or President Trump’s, one thing is clear: the U.S. economy will be getting a very much needed cash flow boost. This $2 trillion stimulus being voted just passed will provide $1,200 to every single American adult making $75,0000 or less, $350 billion in near zero-interest small business loans, and other aid relief to major corporations and unemployment. Freddie Mae, Fannie Mac, and HUD have already gotten a head start by calling for an “Immediate foreclosure and eviction moratorium for single-family homeowners with FHA-insured mortgages.”
Other similar stabilizing actions like the delay in the tax deadline to July 15th, and the possibility of a cut in payroll taxes, will absolutely help stave off economic stagnation. However, there are other underlying issues like a commercial-mortgage market collapse that concerns everyone involved in that money chain. Some experts predict we will need 5 times what Congress is voting on now, but when this next package arrives will largely depend on the success of this current one.