Fed Slashes Rates to ZERO and Helps Home Owners and Buyers in Response to COVID-19 Fueled Economic Uncertainty
THE CORONAVIRUS SPREADS ECONOMIC UNCERTAINTY IN OTHERWISE HEALTHY GLOBAL ECONOMY
Unemployment remains at a 50 year low and the February jobs report came back extremely positive with numbers exceeding expectations. That is why it is so sad to see the devastating effects of the economic uncertainty that are upon us due to the threat of the novel coronavirus COVID-19. Businesses and schools across the world are preparing themselves for the possibility of long-term closures and figuring out how to carry on business-as-usual as much as possible in that scenario. Store shelves are being emptied of disinfectants, hand sanitizers, toilet paper, and dry goods. The coronavirus is spreading panic and economic uncertainty across the globe faster than the virus itself. And yet amongst all the chaos and panic there is a silver lining for home owners and home buyers
THE FEDERAL RESERVE BANK SLASH INTEREST RATES TO ZERO!!!
The markets are in turmoil as supply chains are being gravely disrupted and the global travel and tourism are dropping off drastically due to the spread of the coronavirus. The Federal Reserve Bank (The Fed) is attempting to stay ahead of a plausible economic downturn by preemptively imposing an emergency rate cut of a half of a percent. This brings With 2019’s volatile economic performance the Fed introduced 3 rate cuts with intentions of bolstering the US economy prior to any economic fallouts. It’s hard to say whether the Fed rates cuts had anything to do with it or not but the economic outlook and progress thus far for 2020 was very positive. The Fed had intended on remaining steady with interest rates until the recent economic threats presented themselves. In response the Fed slashed rates by a half of a percentage point at the beginning of March resulting in rates in the 1-1.25% range. The Feds hopes are to continue to bolster the economy and cushion any fallouts by continuing to make it attractive to borrow. And now the Fed has announced a further emergency rate cut and has slashed rates to ZERO!!!!!
MORTGAGE RATES AT NEARLY ALL TIME LOWS!
And now for that Silver Lining! For those who currently own a home or are in the process of buying this is a great turn of events. 30-year mortgage rates are hovering around 3.375%!!! 15 year mortgages are closer to 3.0%!!! These rates are close to the historical lows that 2012 brought us. And these are the rates that resulted from the initial emergency rat cut. We should see rates dropping even further!!! This can lead to hundreds of dollars of savings every month! In the current climate of economic uncertainty some buyers have expressed apprehension moving forward with their plans to buy at this time. The new and incredibly low rates should alleviate that and help buyers feel confident. In fact it is actually a blessing for those currently in the process of buying! A 1% change in interest rates is the equivalent of a 10% drop in purchase price. Overnight buyers have gained major purchasing power! It also helps to counter-balance any depreciation in the market we may experience due to the economic blowback. I do not believe this is 2008 all over again. We do not have the same conditions in the mortgage market to drive me to believe that the bottom is falling out. Lending standards are so much higher currently than they were prior to 2008. Also consumers have steered pretty clear of adjustable rate mortgages (ARMs) since the housing crisis. Most home owners are in 30-yr fixed loans with affordable monthly payments. In the years post-2008 we suffered some large years of depreciation; the largest of which were around -20%. In the rare event that we did have a year of horrible depreciation the recent interest rate drops help to diffuse that. Current homeowners also will likely find substantial monthly savings by taking advantage of the currently low rates by re-financing their mortgage. If your current mortgage rate is .75% higher than what the current rates are it’s a no-brainer to re-finance. If it’s closer to .5% higher than it is likely that re-financing is a wise move. Feel free to reach out if you need some mortgage broker referrals.
LOW REAL ESTATE ECONOMIC IMPACT IN NORTH LAKE TAHOE AND TRUCKEE THUS FAR
I have had many people asking me how global economic uncertainty is affecting the North Lake Tahoe and Truckee real estate markets. So far, most buyers seem to be hanging tight and few escrows have cancelled though I have heard of a few cancellations attributed directly to coronavirus economic impacts. There have also not been any major upticks in price drops. We are not feeling direct impacts of the coronavirus on the Tahoe and Truckee real estate market as of yet. We may begin to see some longer marketing times and subsequent price drops in response to where we are finding ourselves economically, which is a trend we saw last summer as well. Even with periods of nationwide economic uncertainty and quarters of stagnant-to-negative growth in the real estate market, 2019 resulted in a year of positive growth for North Lake Tahoe and Truckee. As 2019 shows, a few negative quarters do not always lead to a year of negative growth. The U.S. economy has been in the longest recovery on record. The real estate market in Lake Tahoe and Truckee has had years of slower appreciation and negative years (2015) alongside booming years during the recovery. Based on recent continued interest in real estate in North Lake Tahoe and Truckee I do believe any downswings in pricing (if any) will not be major. If you were in the market prior to the COVID-19 outbreak the current lending conditions are only more attractive now. It may take longer for the overall economy to rebound from the coronavirus-fueled economic downturn than it did from the 2019 volatility. However, I find it really hard to believe that the bottom is falling out of an otherwise healthy U.S. economy and that it bounce back fairly quickly. Historically recessions and economic downturns in the overall economy do not correlate with downturns in the real estate market though we are conditioned by The Great Recession to believe they are.