It might be — but not for the reasons you might initially think.
These really are most unusual times, especially when you consider the Covid-19 pandemic…but really good home buying opportunities are out there, to be sure.
Right now, buyer demand is down, as sellers just aren’t seeing the multitudes of offers they had a little over a month ago. A few have even taken their homes off the market, but the majority are looking to sell now and are forced to consider offers from a smaller buyer pool.
After Covid-19
When the coronavirus pandemic subsides, home prices could very well be higher, and financing could be harder to come by, so buyers should try to find deals now, if they are able.
So says Barbara Corcoran, founder of the Corcoran Group, a New York-based residential brokerage.
“If you’re smart enough to attack the market as an educated consumer, and get out there, and make a bid on a sweetheart deal, you’re gonna be the smartest guy. And everybody’s going to applaud you six months from now,” Corcoran said on Wednesday.
The market could very soon favor sellers even more than it did previously. Many sellers have pulled their homes off of the market, which will further limit inventory and drive prices higher. It’s just simple supply and demand.
On top of that, buyers will have more competition once consumers start buying again.
“The reality is [that] when they [buyers] come to the market, everyone’s going to be in the market at the same time, they’re going to pay more for the home then than they’re going to pay now,” said Corcoran.
While the current lock down is making buying real estate difficult, buyers should still keep an eye on their local market so they can recognize a good deal when they see it, Corcoran said.
To identify good deals, buyers should learn about their local market, monitor sales data and find the right real estate agent.
“Because then they’re [the educated buyer] in the position to actually recognize a sweetheart deal when they see it. And if they pounce on it, they’re going to get the deal of a lifetime,” said Corcoran.
“Every real estate cycle that has gone up and down, the deals weren’t made in the down cycles, nor in the up cycles. They were always made in the times where there’s the greatest uncertainty where everybody’s guessing.”
In Conclusion
Now really is a good time to act, if you are able. Do reach out to me if you would like some help with financing – and I’d be glad to point you in the direction of the right real estate agent, as well!
The Covid-19 Coronavirus has led to some challenging times for
all of us.
For homeowners and business owners, the US Government has created the CARES Act to assist those whose income may have been adversely impacted by the coronavirus.
One of the components of the CARES Act is the possibility of
mortgage forbearance.
Please keep in mind that forbearance is designed to help those as a
measure of last resort. It is not a
free pass and may have serious consequences.
My advice is that if you can pay your mortgage, make sure and do it. This is not a time to try to take advantage of an untested program that might actually hurt you down the line.
Again, unless you are facing an immediate issue, pay your mortgage on time.
What is Forbearance?
Forbearance is often misinterpreted. And while it is intended to help, it can have some dangerous repercussions. Many people are mistakenly thinking that forbearance equals forgiveness. It does not.
To be clear, forbearance means that the payments will be
suspended for a short period of time, initially up to 6 months, but will need
to be caught up when the forbearance period is over.
One way to think about forbearance is when you buy something at a furniture store that offers “no payments” for 3 months. You still must pay for the furniture…the payments are just deferred.
But mortgage forbearance is even worse if a borrower has dug themselves in a deep hole and can’t catch up. Should this happen, the lender could enforce their right to be paid, which may cause the borrower to be foreclosed upon. They could lose all the equity in their home in the process.
How The Process Is Working Today
What’s being reported is that lenders and servicers will require three months’ worth of payments – plus the current month – once that forbearance period is up.
Per Jessica Menton’s story the USA Today: “Some homeowners say Wells Fargo, Bank of America and Chase have told them they have to repay those postponed payments – known as forbearance – in a lump sum once three months are up.“
“The problem with the CARES Act is that it doesn’t make clear how borrowers pay back the money during a forbearance period,” says Shamus Roller, executive director at National Housing Law Project, a nonprofit legal advocacy center.
“There’s a chance that something could go wrong in that process,” he says, “and it requires a lot of interacting with servicers that are overburdened with calls.”
HOW TO REQUEST FORBEARANCE OR OTHER MORTGAGE RELIEF
Call your servicer.
You may need to stay
on the phone for a while before the servicer is able to take your call.
Loan servicers are
experiencing a high call volume and are also impacted by the pandemic, so may
be working with staffing and technology limitations.
Have your account
number handy.
Depending on your situation, I may be able to help by eliminating your debts, lowering your payment, and giving you a cash cushion during these turbulent times. Don’t hesitate to reach out to me, as it would be my pleasure to assist you!
Mortgage rates went from ridiculously low to “still not-so-bad” in just over a week. I can’t say that I recall ever seeing mortgage backed securities and mortgage rates having such gigantic swings in 6 days.
A flood of demand for refinancing combined with volatile credit markets last week caused mortgage rates to actually spike on Tuesday and Wednesday. By Thursday, buyers for mortgage debt had largely stopped making bids.
Borrowers who were looking at a 3.25% or a lower rate on a 30-year mortgage the prior week were quoted 4% on Tuesday and then above 4.25% on Wednesday.
When U.S. mortgage rates spiked last week, the entire market clogged up on Thursday and bidding on mortgage loans essentially stopped.
Secondarily, the Federal Reserve cut the federal funds to near zero on Sunday, adding to their earlier rate cut of a half a percent last week.
The Fed has also stated it will purchase $700 billion in bonds and mortgage backed securities on Sunday. Last week’s Fed injection was to allow banks to have the appropriate levels of cash reserves.
This new one is to bolster markets ahead of potential coming weaknesses.
Nearly all of this was in direct reaction to
the COVID-19 (Coronavirus) threat and fears of an economic calamity that could
be brought on by the virus.
Stock trading was halted for 15 minutes a few times last week due to a 7% drop in the market.
Treasuries tumbled to levels never seen before and the stock market dropped to a point where the Dow officially entered the bear market, ending the 11-year run in bull market territory.
Given all this, mortgage rates should have seen a serious decline last week. Instead, they’ve climbed nearly 0.75% in the last couple of days.
Why the disconnect? There
are 3 main reasons for this anomaly:
Capacity
Mortgage applications soared 55% last week from the previous week and demand for refinances rose to an almost 11-year high, as borrowers responded to the historically low rates.
Because of this volume, multiple investors actually stopped taking applications due to capacity concerns. Many mortgage lenders would no longer accept locks less than 60 days for refinances. Their systems are stressed and they do not have the capacity to originate, process, and underwrite such an extremely high influx of loans.
Essentially, mortgage lenders are trying to put 10 gallons of water in a 2 gallon jug.
So, investors are raising rates to combat the
surge in an attempt to slow things down a bit.
Out With The Old and In With The New
The surge in refinances has increased prepay speeds for securities backed by recent mortgages. This is essentially shortening the term of the investment and reducing the expected return of previous mortgages by the investor and servicer.
With this increased flood of refis, many previously funded and serviced loans are actually money losers now.
These losses for investors and servicers will see their revenue streams from their mortgage servicing rights dry up. Most mortgage servicers see a break-even of 3 years for each transaction – and most mortgages are kept on an average for 7, so there’s generally a tidy profit for the average loan.
A vast majority of the loans being refinanced
are less than 3 years old – many are less than 18 months old, as a matter of
fact..
So, investors are adding in some padded profits to cover those losses…and they do they by increasing mortgage rates they charge to borrowers.
Margin Calls
Because of the intense stock market drop this
week, many investors were forced to sell their most easily liquidated assets to
cover stock losses.
Many of those assets were mortgage backed securities
that had appreciated and were easily available to be sold.
In the short term, that made mortgage backed
securities more expensive, forcing rates higher in the short term.
Fed
Rate Cut and Mortgage rates
Also, many erroneously believe that Federal Reserve rate cut directly correlates to mortgage interest rates moving downward. As you can see by the piece I’ve written here, the Fed does not control mortgage rates. As a matter of fact, there have countless times where the mortgage rates moved higher the day fed cut the federal funds rate.
Note
that the federal funds rate is the interest rate at which depository
institutions lend reserve balances to other depository institutions overnight
on an uncollateralized basis. This is
not what drives mortgage rates – it does influence them, but does not “set”
them.
Treasury Yields and Mortgage Rates
The 30-year fixed mortgage rate and 10-year
treasury yield generally move together because investors who want a steady and
safe return compare interest rates of all fixed-income products.
This week, that relationship seemed to
disappear, as the 10-year treasury plummeted and mortgage backed securities
increased, due mainly to the 3 factors listed previously.
What Does The Future Hold?
It’s important to understand that mortgage
rates are still extremely attractive relative to historical norms.
Until things normalize a bit, we can continue to expect volatility in the marketplace, although yesterday’s Fed actions could move the market in the short term.
If you haven’t locked and started already with a refinance, then I recommend that you get ready to do so, as timing could be everything. Once the investors clear out some backlog and more economic data comes out (especially concerning COVID-19 ), mortgage backed securities will most likely get a boost and mortgage rates should ease back down once again.
My advice is to stay patient and be ready to move when the numbers work for you.
Secondly, inflation (the arch enemy of interest rates) is low, and the latest measures show that pressures are actually easing…again, good news for interest rates in the long term.
What Can You Do Now?
I recommend that you reach out to your mortgage lender right awayand put a plan in place for a future drop in rates. It would be my pleasure to give you some scenarios that might help you in your decisions making to know when/if you should make a move. Don’t hesitate to reach out to me for more!
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
