We are living in a generational-defining moment. How we cope and change amid this COVID-19 pandemic will define humanity for years to come. While I hope we bounce back quickly, I fear we have a long road ahead; medically, socially & financially. Even then, “normal” will have a very different feel compared to life before the pandemic.
On the economic front (the only front I really should dip a toe into on this blog), each week in March has seen unprecedented events, only to be outdone the very next week. It has truly been MARCH MADNESS!!! Mortgage rates, for example, hit their lowest levels ever on March 6th, but then saw rates climb faster than any other time in recent memory on March 13th. Then on March 19th, The Federal Reserve Bank began injecting a record amount of funds into the mortgage market to stabilize rates. Their intervention had positive effects for standard mortgages, but this week we are seeing irregular mortgage products (ie – Jumbo loans or alternative documentation loans) essentially vanish from lender’s rate sheets, terribly reminiscent of the 2008-2009 “mortgage melt-down” crisis.
It has been an astonishing roller coaster ride, & I’ve been recording short videos in recent weeks to keep clients up to date on these mortgage market developments (click here for the YouTube Playlist).
Today’s video (see below; complete with fun green-screen effects!!!) is a recap of some of the latest developments, most notably this week’s jobless claims and stimulus package details, and also a forecast of what to look for in the days and weeks ahead.
Here’s why I feel this is important insight for my clients. Over the last 40 years, every US economic recession has forced mortgage rates lower. Many folks argue COVID-19 will push us into a recession; how could it not!!?? This week’s unemployment claims figure of 3.3 million is nearly 5 times higher than the previous high, and our government is poised to pass a 2+ trillion dollar stimulus package, which may stop the bleeding but it alone will not turn the tide on this crisis. It’s very possible mortgage rates will push lower in the near future, so as a community we should be prepared for that opportunity.
But it’s not as simple as saying a recession automatically leads to lower mortgage rates. The mortgage market has tremendous hurdles currently facing it that could push rates higher. Either watch today’s Mortgage Market Video here, or keep reading below:
- RISK of buying mortgage bonds has increased dramatically – With millions of people being laid off each week with no end in sight, investors of current mortgage bonds are worried about higher delinquency and foreclosure rates. This withers away the value of their current investments, and makes them leery of purchasing more new ones. If you got food poisoning from eating at a particular restaurant, would you go back right away? That’s the dilemma facing mortgage bond buyers at the moment, and rates have to go up to lure them back.
- Lenders are UNCERTAIN if they can sell new mortgages for a fair price – when we start a loan with you, we lock in the rate upfront with a bank. That bank has to then guess what the value of that mortgage will be on the open market when we close in 30-45 days. This is known as “hedging,” and the more volatile the market the more expensive it is for the banks to hedge. With unprecedented market swings, banks are spending a ton of money hedging their bets, and this cost gets passed on to you via higher mortgage rate offerings. Some lenders are suspending locks until loans are underwriting, creating further problems and uncertainties for banks and borrowers.
- Most lenders will have CAPACITY issues to handle a big surge of refi applications – With the unknowns of today’s economy, most banks are not looking to hire new staff. But, if mortgage rates drop dramatically they’ll need more staff to handle all of the new refinance applications OR take much longer to underwrite files. To keep a “governor” on the speed they receive new applications, banks may keep their rates artificially higher even though normal market conditions would suggest rates should be lower.
Due to RISK, UNCERTAINTY & CAPACITY issues, the current market requires a different game plan. In years past, if mortgage rates suddenly dropped I’d call as many clients as possible to jump on a refi application. In today’s environment, however, we have to be more pro-active. We need to have an application in place BEFORE the rate drop. Doing so allows us to serve more clients during those short windows when mortgage rates fall. And doing so gets you ahead of everyone else who is sitting on the sidelines. If your application is in & the underwriter has approved it, you’ll be in the front of the line for record low mortgage rates.
Will mortgage rates fall below 3%? I don’t know for sure. If the last few weeks have taught us anything it’s that nothing is for certain, but I’d like to spend my time & talents helping you to prepare for such an opportunity. If you’d like to discuss further your potential refinance goals, please get in touch with me. We’ll lay out a game plan, whether it be for a low rate, cash in your pocket, or a big reduction in your monthly payment. Let’s prioritize goals, gather needed application documentation, and work together to stay apprised of mortgage market developments.
Stay safe out in this world, and sane inside your cozy home!