Our news cycles, social media feeds and conversations are predominantly focused on the everchanging impact that COVID-19 is having on the economy, health care, social interactions, government guidelines and business. As a real estate professional, my phone and email is lighting up with questions about the impact of COVID-19 on the real estate market and mortgage rates.
As we have all heard by now, over the weekend the Federal Reserve cut its benchmark funds rate to 0% and pledged to buy $700 million in Treasuries and mortgage bonds. This sweeping act was done in an emergency to protect the already skittish economy against the long-range effects of COVID-19. This move by the Fed has been the most dramatic since 2008 and is intended to keep market stability in the face of so much uncertainty. With the dive of the stock markets around the world, it does not at all surprise me.
- AbsolutVision, Pixabay
With the announcement of the rate cut, I had several people contact me in a panic about needing to buy now or refinance tomorrow because the rates are at zero. Let me clarify, that the Fed's rate cut DOES NOT equal 0% mortgage rates. As I discussed in my last column, mortgage rates are guided by Treasury yields and not the short-term prime rates that are dictated by the Federal Reserve. Mortgage rates did tick back up last week, however some are forecasting that we could see fixed term rates drop again. Windermere Real Estate Economist Matthew Gardner states that the Fed's purchasing of Treasuries and Mortgage Backed Securities will drive fixed term rates down. That said, we don't know how much or when that may happen.
Another consideration with interest rates is capacity. With the dramatic rate drop two weeks ago, lenders were and still are working double time with those who are looking to take advantage of the lower rates. Clint Edwards of High Lakes Lending states, "With lenders quickly reaching their capacity, they began backing off on rates to try to slow the flow of new refinance loans being submitted, resulting in rates taking a jump in the wrong direction, just as many folks were initiating applications in the hope of having perfect timing." As rates continue to move, it's very likely that we could experience longer loan process timing, escrows and closings.
Another question I am getting a lot is how we are going to market, look at homes and show homes, all the while keeping safe from potential exposure? In a market that has traditionally required significant face-to-face, close contacts, realtors are pivoting to ensure we're still able to provide services to our clients and do our part to maintain the stability of the real estate markets across the nation. The National Association of Realtors has issued guidelines for realtors to consider alternative types of marketing for sellers, such as video tours and other mediums for virtual tours of a property. NAR is also encouraging various open-house procedures, such as asking that people sanitize their hands before and after entering a home and also limiting the number of people in the home at any one time. Sellers should be sure to clean the property thoroughly post showings and pay close attention to disinfecting handles, faucets and surfaces commonly touched. Over the weekend, I showed a property where the occupant required that we sanitize our hands, then wear gloves and not touch anything while touring the home.
The effects of COVID-19 are far reaching. It's incredibly important that we work together as community members, clients and professionals to move through these uncertain times with care and vigilance. This includes working with real estate professionals to make sure that we have the correct information about rates and practices, having patience with one and other as we work through this ever-evolving time together and remember that we are all doing the best we can to adjust and adapt.