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Clare Trapasso

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As businesses across the United States have been mandated to close their doors in a desperate effort to slow the spread of COVID-19, people have been losing their jobs left and right. Now, we’re seeing the first unemployment report since the first “shelter in place” orders, and it’s far more grim than anyone had expected.

A record 3.28 million Americans filed for unemployment support in the week ending March 21—the most claims ever filed in a single week.

“Normally, when an economy goes into a recession it develops slowly over time,” says realtor.com® Chief Economist Danielle Hale. “That’s not happening this time around. … It’s pretty clear that the economy is grinding to a halt pretty suddenly.”

It will also be a tough blow to the already wobbly housing market, since those who lost their jobs are not likely to be buying a home anytime soon. Even the millions of Americans who haven’t been laid off or lost work yet are likely to hold off on a major purchase, fearing for the stability of their employment. And while ultrawealthy buyers may be insulated from the downturn, they may still balk at plunking down millions of dollars on a property they can’t even walk through. In response to this lack of demand, many sellers will likely pull their properties off the market until the crisis passes.

However, folks shouldn’t expect home prices to plunge by the double digits as they did during and after the Great Recession. In the last downturn, there were many more properties for sale, due to an overabundance of construction and mass foreclosures, than there were qualified buyers.

This time around, there is a severe shortage of housing for sale. Builders haven’t been putting up enough homes to meet demand for years. And there isn’t likely to be a huge wave of foreclosures because borrowers are in better financial shape. Plus, the federal and many state governments, along with some banks, are rolling out forbearance and other programs to help Americans who’ve lost their jobs stay in their homes. This is all likely to stabilize prices.

“Price growth will slow, and it’s possible that prices could decline” in certain markets, says Hale. “Folks expecting price declines to happen like they did during the last recession are going to be disappointed.”

The hardest-hit areas will likely be those with the highest percentage of jobs in tourism, leisure, and hospitality, the industries most affected by the novel coronavirus. But even in these areas, Hale doesn’t expect prices to go down more than 5%.

However, sales will slow down as there are simply fewer buyers and sellers in the market. Plus, it’s harder to transact remotely.

“We will see a shocking drop-off in home sales in a very short period of time,” says Hale.

They’re likely to rebound when the virus is under control, but there will almost definitely be fewer sales this year than anticipated before the pandemic.

“We don’t know when things will get back to normal,” she continues. “But when they do … we might also see a really strong bounce back.”

But Americans should expect things to get worse before they get better. Jobless claims will likely remain high until the crisis abates—and that timeline is still unclear. But the federal stimulus package expected to pass, which includes $1,200 checks to most Americans, could help to steady the markets.

“All the incoming data will also be off the chart for a few months,” Lawrence Yun, chief economist of the National Association of Realtors®, said in a statement. “The key is whether the stimulus package can reverse all these damages by the second half of the year.”

Author: Clare Trapasso

Source: Realtor: How Record Unemployment Claims Will Affect the Housing Market

After the federal government agreed last week to help out struggling homeowners affected by the coronavirus, many hard-hit renters struggling to pay their bills cried foul as they wondered if any help was heading their way as well. Well, now it is—sort of.

The Federal Housing Finance Agency announced this week that it would be offering financial assistance to many landlords—if they don’t evict tenants in apartments for rent who’ve lost jobs or income due to the pandemic and can’t make their rent payments. Think of it as trickle-down assistance.

Landlords will be eligible for mortgage forbearance for up to three months if they own multifamily properties, defined as buildings with five or more units. (They must also have Fannie Mae or Freddie Mac loans.) The hope is that landlords won’t have a financial incentive to kick out renters if building owners aren’t depending on those rent checks to make their own mortgage payments.

“Renters should not have to worry about being evicted from their home, and property owners should not have to worry about losing their building, due to the coronavirus,” FHFA Director Mark Calabria said in a statement. “[This] should bring peace of mind to millions of families during this uncertain and difficult time.”

This could help up to 4.2 million people living in more than 27,000 properties, according to Freddie Mac.

This is the first time the government has offered anything like this before, according to a FHFA spokesman.

Tenants are likely to need the help as they tend to earn less than homeowners. Renter households earned a median $41,515 in 2017—compared with $77,523 for homeowner households, according to a National Multifamily Housing Council report. And many of the nation’s lower-wage jobs are industries that have been badly hurt by the crisis, such as retail, food service, and tourism and hospitality.

It’s “a smart policy reaction to the coronavirus emergency,” says realtor.com® Chief Economist Danielle Hale. “It gives building owners with mortgages some flexibility in their payments so that they can pass this flexibility on to their renters.”

The FHFA announced last week that homeowners affected by the crisis would get a break. The government will suspend all foreclosures and evictions for at least 60 days for single-family homeowners with Fannie or Freddie loans. This affects about 28 million borrowers—about half of all residential mortgages.

The agency will also provide monthly mortgage payment forbearance, for up to 12 months, for struggling homeowners.

There are some efforts underway to protect renters. The U.S. Department of Housing and Urban Development is urging public housing authorities not to evict anyone during this crisis.

Cities such as Detroit and Los Angeles have temporarily suspended evictions as have states such as New York and Washington. San Francisco’s sheriff also said that he won’t be enforcing eviction orders for now.

Author: Clare Trapasso

Source: Realtor: The Government Has a Plan To Help Out Renters—Will It Be Enough?

With the economy in near shambles, layoffs becoming widespread, and more of the country under orders to shelter in place to stem the spread of the coronavirus pandemic, historically low mortgage interest rates were one financial bright spot.

Not anymore.

Both homeowners seeking refinances and home buyers will likely be disappointed by rates that have fluctuated wildly in recent days—by the hour in some instances. That kind of volatility is unprecedented, and makes it more difficult for borrowers to lock in a low rate, say experts. And mortgage rates have surged upward despite the Federal Reserve slashing short-term interest rates.

Rates increased by more than a full percentage point from a low of 3.13% on March 2 to 4.15% on Friday, according to Mortgage News Daily. Some lenders are reporting rates in the mid-5% range.

Mortgage rates are “the most volatile they’ve ever been, by a wide margin,” Matthew Graham, chief operating officer of Mortgage News Daily, told realtor.com®. “The craziness of today and this week cannot be overstated.”

That’s likely to frustrate borrowers looking for the silver lining amid the COVID-19 catastrophe.

“Rates are moving so much that there’s no guarantee … you’ll get a rate that you just saw advertised,” says realtor.com® Chief Economist Danielle Hale.

Why mortgage interest rates are on a roller-coaster ride

Typically when the economy is struggling, mortgage rates fall. But there’s nothing typical about this period. And there are several financial reasons that rates are seesawing so wildly.

First, it’s a reaction by lenders to the overwhelming throngs of homeowners who have been looking to refinance their mortgages when the rates bottomed out earlier this month. The gold rush was understandable: Some homeowners were able to save themselves hundreds of dollars a month and tens of thousands of dollars over the duration of their 30-year loans after refinancing at lower rates. But the hordes of people looking to lock in such deals turned out to be more than some lenders could handle. Many hiked up their rates to slow down the process,

But the bigger driver of the volatility involves mortgage-backed securities in the secondary market. After lenders make a mortgage, they typically don’t want to hold on to it because it ties up money they could be using to make new loans. So they sell the mortgage loans, which are bundled into a collection of mortgage-backed securities (aka mortgage bonds), to investors in the secondary market.

Still with us? Investors view mortgage -backed securities similarly to U.S. Treasury bonds. They’re both typically safer, less lucrative investments than the stock market. So with the stock market hurting, investors have traditionally turned to bonds. But now there is a glut of bonds on the market, thanks to the deluge of refis and the federal government issuing more bonds to fund economic stimulus measures. So bond prices are low.

And since mortgage rates are the inverse of bond prices, when bond prices are down, mortgage rates go up.

“The mortgage market is in absolute CHAOS!” Graham wrote in a recent article. “Coronavirus has created an unprecedented situation for the entire rates market (not just mortgages, but U.S. Treasuries and everything else).”

Now, the Fed has pledged to buy up at least $500 billion in U.S. Treasury bonds and $200 billion in government mortgage-backed securities over the coming months. That’s very likely to stabilize mortgage-backed securities as the demand is expected to bring mortgage rates down again.

But the problem is that many skittish investors want to keep their money more liquid during an unprecedented health and economic crisis—instead of locking up their cash for multiple years.

So as the stock market seems to be changing by the minute, so are mortgage interest rates.

“People want flexibility right now because things are different today than they were a couple of weeks ago,” says Hale. “When you don’t know what’s going to happen, holding cash gives you flexibility.”

What mortgage rate fluctuations mean for buyers

Longtime mortgage lender Don Frommeyer is advising his clients to apply for a refinance or purchase loan and get their paperwork in now. That way once rates fall again, they’re ready to lock in a low rate. Rates at his company, CIBM Mortgage, in Indianapolis, were at 5.5% as of Friday.

“The rates should really be down somewhere in the low 3% [range], and they’re in the 5% range,” says Frommeyer. “I’ve been in the mortgage business 45 years, and this is the first time I’ve seen it crazy like this.”

But buyers and homeowners should also realize the chaos is unfolding in real time.

“Be prepared to be a little bit flexible because things are moving so quickly now,” says Hale. “It could be days, it could be weeks, it could be months before it makes sense for you to refinance.”

And folks shouldn’t forget about the fees involved in a refinance. They average about $4,345 nationally, depending on the size of the loan and the lender, according to ValuePenguin, a consumer spending information website.

When things will calm down and stabilize is anyone’s guess.

“The rates should really be down somewhere in the low 3% [range],” says Frommeyer.

“While we can logically conclude that a massive economic recession should coincide with very low rates, there’s too much uncertainty,” Graham wrote. “As for how long it takes rates to get back to where they ‘should’ be, it’s impossible to know.”

Author: Clare Trapasso

Source: Realtor: Mortgage Rate Madness: They’re Up, They’re Down, Where Will They Land?

The coronavirus pandemic, and resulting financial crisis, stock market crash, and growing number of layoffs, could make the already serious housing shortage even more severe.

Amid widespread fear and unprecedented measures, including social distancing and “shelter in place” procedures in especially hard-hit cities, nearly 28% of Realtors® are seeing fewer homes on the market as a result of the coronavirus, according to the most recent National Association of Realtors® Flash Survey: Economic Pulse report. And the inventory shortage is growing by the minute as only 10% of Realtors observed fewer listings the week before.

More than 3,000 Realtors participated in the survey conducted on Monday and Tuesday of this week.

“If sellers remove their home from the market, it will continue to plague the historically low inventory conditions that face the country,” says Jessica Lautz, vice president of research at NAR.

Many homeowners are practicing social distancing by taking the “For Sale” signs off their front yards as fears of an economic downturn and having potentially infected strangers tramping through their properties mount. But with the nation already experiencing a lack of inventory, this is likely to make the problem even worse as demand outstrips supply.

About 16% of Realtors saw sellers take their homes off the market due to the coronavirus—compared with only 3% a week earlier, according to the survey.

Sellers who don’t pull their listings are being careful.

Roughly 40% of Realtors are now reporting open houses have been stopped. Twenty-seven percent have seen buyers required to use hand sanitizer when entering a property, while 6% observed buyers being required to use gloves.

“Sellers are ensuring the health and safety of their families and Realtors,” says Lautz.

The fear of the virus and what could be a looming recession isn’t just confined to sellers. Nearly half of Realtors, 48%, say buyer interest has dropped because of the coronavirus fears. That’s a significant hike from 16% the previous week.

In areas with more confirmed cases of COV-19, 53% of Realtors said interest had waned, the survey found.

That’s likely because many potential buyers are worried about the security of their jobs. Some don’t want to make what could be the largest purchase of their lives and be tied to 30 years of loan payments if they don’t have steady income coming in.

About 28% of Realtors reported buyers lost confidence in the housing market after the stock market crash. But ultralow mortgage rates, which reduce monthly mortgage payments, are helping to offset the financial fears. Another 28% of Realtors said the low mortgage rates excited buyers more than all of the bad economic news.

“Buyer activity has slowed currently while buyers are listening to precautions of how to stay healthy,” says Lautz. But she’s optimistic that buyers will return to the market once the crisis has passed.

“Buyer activity will rebound after the quarantine is lifted, as buyers will be attracted to low interest rates,” she explains.

Author: Clare Trapasso

Source: Realtor: How the Coronavirus Is Affecting Home Buyers and Sellers Right Now

Kids furloughed from school, bars and restaurants closed, and people told to stay at home except for essential errands—the coronavirus pandemic has already upended life as most Americans know it. Now it’s expected to turn the typically busy spring home-buying season on its head as well.

Despite the extremely low mortgage interest rates, the nation could be in for a rocky home-buying season. A recession triggered by COVID-19 appears to be on the way, and the stock market has plummeted, giving many buyers pause. There are also likely to be fewer homes on the market, longer closing times, and plenty of unanticipated delays in the coming weeks, say experts.

“I don’t think we’re going to have the spring boom that we have every year,” says national real estate appraiser Jonathan Miller. “It’s reasonable to assume that people will shift from the drive to save money with lower rates … [to protecting their] personal safety.”

It’s also not yet clear if the recent actions by President Donald Trump, Congress, and the Federal Reserve will stimulate the economy enough to stave off a prolonged downturn. The Federal Reserve slashed its short-term interest rates to between 0% and 0.25% and promised to buy billions of dollars of Treasury bonds and mortgage-backed securities in a bid to buoy the economy.

The president and lawmakers are also weighing a variety of plans to help the economy. Still, they might not be enough to turn the spring market around.

“This was shaping up to be a fairly competitive home-buying season, and that may not be the case” now, says realtor.com chief economist, Danielle Hale. “It doesn’t mean that we won’t still see sales. But I would expect fewer crowds at open houses. I would expect more shopping online.”

Hale doesn’t believe home prices will plummet, as they did about a decade ago. That’s because during the previous financial crisis, there were more homes available than there were buyers. Today, there is a severe housing shortage, and even now there are many more eager buyers than reasonably priced properties for sale.

“I don’t expect [prices] to decline unless the recession becomes extraordinarily long,” says Hale.

Some real estate markets will be harder-hit than others

The problem is that just about everything is uncertain, with the news changing by the minute. San Francisco is a very hot market, but with the city and surrounding counties under order to shelter in place, home sales are almost certain to slow.

Going to a home showing is probably not considered an “essential outing” under the order. Sellers could pull homes off the market, closings could be delayed. And more big cities and smaller communities could find themselves in similar situations.

“It’s probably going to be very different in every market,” says Hale. “I would expect bigger impacts in areas that have seen the greatest numbers of the virus. People are more likely to stay home in those areas.”

In badly affected areas, sellers are beginning to pull their properties off the market. Others likely won’t list their homes until the crisis wanes. At least one multiple listing service, based in the Seattle area, is no longer advertising open houses. And many buyers are canceling showings.

“Do you want 20 people walking through your open house?” asks appraiser Miller. “Do you want to go into a stranger’s house?”

Some buyers are worried about contracting the COV-19 virus. Others are hesitant to deplete their life savings and lock themselves into a 30-year loan with a potential recession on the horizon. And many are concerned about both.

Coldwell Banker agent Danielle Schlesier says she is virtually showing homes around the Boston suburb of Brookline, MA, to eliminate person-to-person contact. She’ll do FaceTime tours with her clients while inside a home for sale, and shoot videos.

The upside is that there isn’t expected to be as much competition from home shoppers.

“They can negotiate for better prices,” says Lawrence Yun, chief economist of the National Association of Realtors®. “And of course, mortgage rates are exceptionally low.”

Closings could take longer this spring

Low mortgage interest rates have also spurred a refinancing boom from homeowners seeking to lower their monthly payments. Lenders are inundated. And that could slow down the mortgage approval process for first-time and other home buyers.

With all of that business, lenders might issue loans to only the most qualified among them, says Elysia Stobbe, author of “How to Get Approved for the Best Mortgage Without Sticking a Fork in Your Eye.”

She expects loan officers to look for applicants with higher credit scores, more stable income, lower debt, and more savings.

“It’s crazy,” she says. “Everything is slowing down” when it comes to loan processing times.

Other in-person services, such as home inspections and appraisals, could also cause delays in home buying. Some worried sellers, inspectors, and appraisers have canceled or delayed these services.

Still, buyers’ interest won’t be going away.

“The uncertainty doesn’t change people’s long-term desire to own a home,” says Hale. “They may not be brave enough to jump in and submit an offer now, given all the uncertainty. But they’ll still be looking.”

Author: Clare Trapasso

Source: Realtor: Coronavirus Is Likely To Upend the Spring Home-Buying Season—and Not Just in the Way You’d Expect

Mortgage rates, like the stock market, have been on a wild ride in recent weeks. They dropped to record lows earlier this month in response to the spread of COVID-19—and then shot right back up again. And it looks like it’s about to get even bumpier after the Federal Reserve slashed its own interest rates over the weekend in a bid to stave off a recession.

That means mortgage interest rates are likely to go back down again—a boon for homeowners and homeowners hoping to refinance their existing loans to save on their monthly housing bills. But they’re not expected to plummet to the Fed’s new short-term rates of between 0% and 0.25%. Instead, mortgage rates are likely to drop from about 4% on Friday to the mid- to low-3% range in the coming weeks, mortgage experts predict.

These rates are for 30-year fixed-rate loans. Rates are lower for short-term and jumbo mortgages.

“Mortgage rates will go lower. [And] that’s good news for buyers,” says realtor.com®’s chief economist, Danielle Hale. “It’s probably enough, based on what we know now, to keep buyers in the market. It’s also going to help people refinance and have more cash in their pockets.”

Rates hit a low of 3.29% on March 5, according to Freddie Mac. That’s as low as they’ve been since Freddie Mac began tracking mortgage interest rates in 1971—nearly 50 years ago.

But then mortgage rates did something surprising: They rose. Despite the coronavirus-ravaged stock market and growing fears of a recession, they ticked up to 3.36% as of Thursday, according to Freddie Mac. Mortgage News Daily (which is not affiliated with Freddie Mac and measures rates differently) reported they had risen to 4% by Friday on 30-year fixed-rate loans.

That’s because homeowners rushed in, seeking to refinance their existing mortgages to save some serious dough. Many have been able to shave hundreds of dollars off their monthly mortgage payments and tens of thousands of dollars off the life of their 30-year loans. Many overwhelmed mortgage lenders responded by upping rates to keep the flood of refinances at bay.

“We all have way, way more [business] than we can handle,” says Elysia Stobbe, author of “How to Get Approved for the Best Mortgage Without Sticking a Fork in Your Eye.” “Right now we’re all at three times normal capacity.”

All of those refinances also created something of a glut in the secondary mortgage market, which also contributed to higher mortgage interest rates. Lenders typically don’t like to keep the home loans they make on their books, so they sell these loans, which are bundled into a collection of mortgage-backed securities, to investors in the secondary market. This way banks and other financial institutions have more cash on hand to make additional loans.

The influx of refinances in the secondary market meant lower prices for the securities. And since mortgage bonds and mortgage rates move in opposite directions, rates went up.

But the Fed announced on Sunday that it would buy up at least $500 billion in U.S. Treasury bonds and $200 billion in government mortgage-backed securities over the coming months. That’s likely to help absorb the surge in refinances, stabilizing the mortgage-backed securities. And that means mortgage interest rates will likely tumble.

“That should stabilize rates and bring them back down lower,” says Hale. “They’ll [likely] go back to the low 3% [range]. Might we see rates below 3%? I wouldn’t rule it out.”

However, some investors are still spooked by the bad mortgages that were part of the housing bust that led to a financial meltdown just over a decade ago. They may be inclined to shy away from the securities with another recession looming despite the government’s investment in them, says Ali Wolf, chief economist at Meyers Research, a national real estate consultancy.

“That could put a limit on how low mortgage rates could go,” Wolf says.

She expects they’ll fall into the 3.1% to 3.2% range within the next few weeks and stay within or under the mid-3% stretch through the rest of the year.

“Today’s low mortgage rates are equivalent, in some cases, to $30,000 off the price of a home” in some of the nation’s most expensive markets, says Wolf. In Los Angeles, rates around 3.6% can bring monthly mortgage payments down to what they were in 2015. “Mortgage rates are turning back time on affordability.”

The bigger, more immediate question: Will buyers want to close on a home with the COVID-19 pandemic sweeping the globe, leaving many workers in the lurch and the nation on the verge of a recession?

“The idea of social distancing affects the mentality of both buyers and sellers,” says Hale.

Some sellers may decide to pull their properties off the market in response to the crisis. They may not want strangers walking through their homes right now, especially if they’re still living in them.

Other folks may be nervous about what could amount to the largest purchase of their lives if they’re worried about the economy and the security of their jobs.

“We may see a slower than normal spring selling season,” says Wolf. “But those sales will likely return in the summer and fall, assuming we get past the worst of COVID-19.”

Author: Clare Trapasso

Source: Realtor: The Fed Slashed Interest Rates. Here’s Why Mortgage Rates Likely Won’t Follow Suit

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