While Chicagoans and most Americans continue to wrestle with the widespread shutdowns from the coronavirus and a broad pullback in consumer spending, the nation’s home-loan market may be the one bright light in the economy.
Despite necessary behavioral changes being made across the country to stem the virus outbreak—an avoidance of travel and shopping, closing of schools, restaurants, bars and banning mass gatherings—the mortgage market is booming.
On March 19th, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgages averaged 3.65% up from 3.36% a week earlier. A year ago, 30-year fixed loans averaged 4.28%. On March 19th, some Chicago-area lenders were charging as little as 3.25% on 30-year fixed loans, reported RateSeeker.com.
Fueled by worldwide investor panic sparked by the spread of the coronavirus, on March 5th average 30-year fixed-rate mortgages plummeted to 3.29%—the lowest rate ever reported in the Freddie Mac’s survey, which dates back to 1971.
However, on March 19th mortgage rates rose for the second week in a row as lenders increased prices to help manage skyrocketing refinance demand, which has generated $391 billion in refi loans since late 2019. “This is expected to be a short-term phenomenon as lenders work through their backlog of applications,” said Sam Khater, Freddie Mac’s Chief Economist.
On the purchase front, Khater said daily loan purchase applications were rising as of mid-February but have started to decline.
On March 15th, the Federal Reserve cut its key rate by a full percentage point to a range between 0% and 0.25%, and said it would buy $700 billion in Treasury and mortgage bonds. The Fed’s surprise announcement signaled its rising concern that the viral outbreak will depress economic growth in coming months, likely causing a recession.
The virus sparked a panic on Wall Street resulting in a 30% decline in the Dow Jones average in March. Retirees experienced a 25% to 30% drop in the value of their 401K accounts which likely will take years to recoup.
The Fed’s aggressive actions are intended to keep financial markets functioning and loans flowing to businesses and consumers. Otherwise, as revenue dries up for countless small businesses that have suddenly lost customers, these employers could be forced to lay off workers or even seek bankruptcy protection in some cases.
By slashing its benchmark short-term rate and pumping hundreds of billions of dollars into the financial system, the Fed’s recent moves recalled the emergency action it took at the height of the Great Recession.
Starting in 2008, the Fed cut its key rate to near 0% and kept it there for seven years. The central bank has now returned that rate—which influences many consumer and business loans—to its record-low level.
As more businesses across the country see their revenue dwindle as consumers stay home, many of them will seek short-term loans to maintain their payrolls.
The Fed said it has dropped its normal requirement that banks hold cash equal to 10% of its customers’ deposits, thereby allowing banks to lend that money instead. It also said banks can use additional cash buffers that were imposed after the 2008 financial crisis for lending.
Meanwhile, the Trump Administration is promising a $1-trillion bailout for Americans in the form of monthly checks of $1,200 to $2,400, plus $500 per child. And, Bank of America has launched a mortgage forbearance program allowing borrowers to pause home loan payments on portfolio loans.
Home stress test
Chicago Realtors said along with rock-bottom mortgage rates, another boost to the spring home-hunting market over the past couple of weeks has been the “home stress test.”
Apparently, with Chicago’s restaurants and bars closed to help contain the virus, many business people who are hunkered down and now working from home surrounded by family are beginning to realize they need a bigger house or condominium.
At the same time some worried home buyers are wavering and postponing closings, while some sellers are taking their properties off the market.
“Ultimately, the virus will run its course and the U.S. economy will resume a normal level of activity,” predicted Fed Chairman Jerome Powell, though he didn’t speculate on when the rebound might occur.
Why hasn’t the federal government frozen stock-market trading to prevent further consumer losses, especially on retirement accounts? Wall Street investment managers continue to make millions of dollars on short sales, a bet that stocks will fall lower, or by buying back corporate shares at bargain prices.
If Uncle Sam has $1 trillion for bailout, why doesn’t the federal government release some money to help pay off all college student loans so Millennials can become homeowners? Home buyers would inject billions of dollars into the economy by purchasing furniture, lawn mowers and other household items.
Is the coronavirus a bio weapon? According to Dr. Francis Boyle, creator of the Bio Weapons Act, it is likely that the virus escaped from a government lab in Wuhan, China. So, the story that the virus was unleashed from the Wuhan fish market likely is a cover up, Boyle said.
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.