Coronavirus & Real Estate
There’s a lot of anxiety right now regarding the Coronavirus (COVID-19) pandemic. The health situation must be addressed quickly, and many are concerned about the impact on the economy as well. When it comes to the health issue, you should look to the Centers for Disease Control and Prevention (CDC) or the World Health Organization (WHO) for the most reliable information. For the most updated information about Leon County and it's efforts to contain the spread of COVID-19, please visit: http://cms.leoncountyfl.gov/covid-19.
When it comes to the economy, we should not become paralyzed by headlines like "Goldman Sachs Forecasts the Largest Drop in GDP in Almost 100 Years." Though the headline is true, it doesn’t reflect the full essence of the Goldman Sachs forecast. The projection is actually that we’ll have a tough first half of the year, but the economy will bounce back nicely in the second half - GDP will be up 12% in the third quarter and up another 10% in the fourth.
Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).
John Burns Consulting
Then there are headlines like "Fed President Predicts 30% Unemployment." That statement was made by James Bullard, President of the Federal Reserve Bank of St. Louis. What Bullard actually said was it “could” reach 30%. But let’s look at what else he said in the same Bloomberg News interview: “This is a planned, organized partial shutdown of the U.S. economy in the second quarter... The overall goal is to keep everyone, households and businesses, whole” with government support." He went on to say that he sees the third quarter as a transitional quarter, and the fourth quarter, and first quarter next year, as “quite robust” as Americans make up for lost spending. “Those quarters might be boom quarters,” he said. Again, Bullard agrees we will have a tough first half and rebound quickly.
So why is the current stock market situation not forecasted to be extremely detrimental to home values? With the housing crash of 2006-2008 still visible in the rear-view mirror, many are concerned that home values are also about to tumble. What’s taking place today, however, is nothing like what happened the last time. The S&P 500 did fall by over fifty percent from October 2007 to March 2009, and home values did depreciate in 2007, 2008, and 2009 – but that was because that economic slowdown was mainly caused by a collapsing real estate market and a meltdown in the mortgage market. This time, the stock market correction is being caused by an outside event (COVID-19) with no connection to the housing industry.
Many experts are saying the current situation is much more reminiscent of the challenges we had when the dot.com crash was immediately followed by 9/11.
What 9/11 has in common with what is happening today is that this shock has also generated fear, angst, and anxiety among the general public. People avoided crowds then as they believed another terrorist attack was coming and are acting the same today to avoid getting sick. The same parts of the economy are under pressure ─ airlines, leisure, hospitality, restaurants, entertainment ─ consumer discretionary services in general.
David Rosenberg, Chief Economist with Gluskin Sheff + Associates Inc
Since the current situation resembles the stock market correction in the early 2000s, let’s review what happened to home values during that time. The S&P dropped 45% between September 2000 and October 2002. Home prices, on the other hand, appreciated nicely at the same time. That stock market correction proved not to have any negative impact on home values. The National Association of Realtors (NAR) anticipates: At the very least, the coronavirus could cause some people to put home sales on hold. While this is an understandable approach, it is important to balance that with how it may end up costing you in the long run.
If you’re considering buying or selling a home, it is key to educate yourself so that you can take thoughtful and intentional next steps for your future. For example, when there’s fear in the world, we see lower mortgage interest rates as investors flee stocks for the safety of U.S. bonds. This connection should be considered when making real estate decisions. We’re experiencing right now as mortgage interest rates hover at the lowest levels in the history of the housing market.
The Fed’s action was expected but perhaps not to this degree and timing. And the policy change was consistent with recent declines for interest rates in the bond market. These declines should push mortgage interest rates closer to a low 3% average for the 30-year fixed rate mortgage.
National Association of Home Builders (NAHB)
Changes in COVID-19 guidelines and requirements seem to be changing daily - from social distancing, the tax deadline extension, utility bill support, unemployment support, local curfews, student loan support, small business loans, and school and local business closures. In addition, there are daily updates about things for homeowners like mortgage payment support, and lower interest rates to refinance. For buyers the real estate community is offering virtual tours, video conference calls for home showings, and even remote closings. We encourage you to stay safe and informed during this difficult time.
Is Now a Good Time to Sell?
There's one thing that is true about housing industry during difficult times like this - people always need a place to live. Not all potential buyer's income was negatively affected here, and investors are looking for opportunities to take advantage of the low interest rates. However, we are seeing low inventory levels of homes for sale even though people are still looking to purchase. If selling is something you are considering, this is actually not a bad time to do it!
However, we also want to make sure you are informed, and talk a little bit about refinancing in the midst of interest rates hitting all-time lows over the past few weeks. To decide if refinancing your home is the best option for you and your family, start by asking yourself these questions:
1. Why do you want to refinance?
There are many reasons to refinance, but here are three of the most common ones:
• Lower Your Interest Rate and Payment: This is the most popular reason. Is your current interest rate higher than what’s available today? If so, it might be worth seeing if you can take advantage of the current lower rates.
• Shorten the Term of Your Loan: If you have a 30-year loan, it may be advantageous to change it to a 15 or 20-year loan to pay off your mortgage sooner rather than later.
• Cash-Out Refinance: You might have enough equity to cash out and invest in something else, like your children’s education, a business venture, an investment property, or simply to increase your cash reserve.
2. How much is it going to cost?
There are fees and closing costs involved in refinancing, and The Lenders Network explains, “As an example, let’s say your mortgage has a balance of $200,000. If you were to refinance that loan into a new loan, total closing costs would run between 2%-4% of the loan amount. You can expect to pay between $4,000 to $8,000 to refinance this loan.” They also explain that there are options for no-cost refinance loans, but be on the lookout: “A no-cost refinance loan is when the lender pays the closing costs for the borrower. However, you should be aware that the lender makes up this money from other aspects of the mortgage. Usually charging a slightly higher interest rate so they can make the money back.”
Keep in mind that, given the current market conditions and how favorable they are for refinancing, it can take a little longer to execute the process today. This is because many other homeowners are going this route as well. As Todd Teta, Chief Officer at ATTOM Data Solutions notes about recent mortgage activity: “Refinancing largely drove the trend, with more than twice as many homeowners trading in higher-interest mortgages for cheaper ones than in the same period of 2018.” Clearly, refinancing has been on the rise lately.
If you’re comfortable with the up-front cost and a potential waiting period due to the high volume of requests, then ask yourself one more question: Is it worth it? To answer this one, do the math. Will it help you save money? How much longer do you need to own your home to break even? Will your current home meet your needs down the road? If you plan to stay for a few years, then maybe refinancing is your best move. If, however, your current home doesn’t fulfill your needs for the next few years, you might want to consider using your equity for a down payment on a new home instead. You’ll still get a lower interest rate than the one you have on your current house, and with the equity you’ve already built, you can finally purchase the home you’ve been waiting for.
Interest Rate Update
Mortgage rates have been trending down, but are also in a state of flux. However, interest rates have remained in a historically low range for quite some time. If you’re in the market for a mortgage, it may make sense to go ahead and lock if you see a rate you like. Just don’t do so without shopping around first.
It's hard to report on something changing daily, but the average 30-year rate has been about 3.82%, or about $467.10 per month in principal and interest for every $100,000 you borrow. The average 15-year rate is about 3.29%, or about $705 per $100,000 borrowed. 15-year mortgages tend to save thousands of dollars in total interest paid, as well as an opportunity to build equity much faster. Additionally, lower interest rates typically means a lower monthly payment. It could be a good idea to play around with an online mortgage calculator to see how your budget fits with the current interest rates. To further explain, please see the infographic above for some helpful information on how interest rates can affect your housing costs.