The 2020 coronavirus (COVID-19) pandemic has caused far-reaching impacts on the global economy. Governments everywhere are acting to minimize the long-term damage to their economies, with the United States Federal Reserve (the Fed) taking steps to protect American industries, including the real estate industry.
The Fed Response to Coronavirus
As social distancing and isolation measures are implemented across the U.S. in response to the Coronavirus outbreak, the Fed has acted to lessen the economic impact. It has done this through interest rate cuts and quantitative easing.
Lending Rate Cuts
The decision was made in early March to make emergency cuts to the Fed interest rates, starting with the first cut on March 3rd and the second on March 15th, bringing the rate down to 0.25%.
On the 15th, the Fed stated that the target is to stay in the 0% – 0.25% range. The result is that lenders can borrow money from the Fed at a much lower rate. Before the rate cuts in March, the interest rate was at 1.25% with early 2020 predictions expecting it to hold steady or potentially increase by the end of the year.
The emergency cuts made by the Fed are intended to increase the supply of money into the U.S. economy and to reduce the rates at which loans are offered by lenders. With many industries in the world economy taking enormous hits to their profits, the reduced price of borrowing is a measure to help businesses and individual consumers get the money they need to stay afloat.
Along with rate cuts, the Fed made another announcement on the 23rd pledging to buy unlimited numbers of government bonds. This part of a quantitative easing strategy is meant to lessen the overall impact of uncertainty in the economy.
Another measure taken was the announcement that the Fed will also open a program to purchase corporate debt from secondary markets. This is in addition to the previously announced plan to purchase $200 billion of mortgage-backed securities from Fannie Mae, Freddie Mac, and Ginnie Mae.
Mortgage Rate Predictions
At present, many people are still taking out mortgages, especially if they are purchasing a home, which is a positive sign for the economy going forward. However, many homeowners who can wait to refinance are waiting for mortgage rates to go lower.
Today, mortgage rates are very volatile because of the uncertainty related to the coronavirus and thus the economy. Rates have swung wildly on multiple days, and we are not yet in a stable mortgage rate environment.
As things stabilize relating to the coronavirus and more certainty returns to the economy, mortgage rates should stabilize and track lower if the fed funds rate remains low.
After coronavirus fears pass and the economy is clearly on a positive path forward, the Fed will likely keep interest rates low to fuel the recovery. During this period, mortgage interest rates should remain low, providing an excellent opportunity for homeowners to refinance and for homebuyers to get a mortgage to purchase a home.
Mortgages to Purchase a Home
Many homebuyers continue to get a mortgage to purchase a home during the coronavirus, surprising many economists.
As the coronavirus is brought under control and the economy stabilizes, mortgage interest rates should decline giving homebuyers an even better buying opportunity.
Refinancing a Home Loan
As a result of the uncertainty related to the coronavirus, mortgage applications to refinance a home loan have dropped nationally, because mortgage rates have not fallen in line with the drop in the fed funds rate.
As the coronavirus is brought under control, and certainty returns to the economy, mortgage rates should stabilize downward, giving homeowners an excellent opportunity to refinance their mortgage.
Reduction of ARM Rates
Homeowners with an adjustable-rate mortgage are likely to see a reduction in their interest rate as certainty returns to the economy and the Fed keeps rates low.
Besides refinancing a mortgage, homeowners who are thinking about taking out a second mortgage on their home will likely have a good opportunity to apply for the mortgage in the near future as mortgage interest rates decline. And again, the timing will probably correspond with the stabilization of the economy, as uncertainty regarding the coronavirus dissipates.
What to Expect in the Future?
The Fed reacts to events that are expected to have a heavy impact on the U.S. economy, such as the worldwide coronavirus outbreak. Once the coronavirus outbreak is downgraded from an ongoing pandemic and the U.S. economy stabilizes, mortgage rates should stabilize and move downward.
As mortgage rates stabilize, homeowners will have an excellent opportunity to refinance, while homebuyers will have an even better opportunity to get a mortgage to purchase a home.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.