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Puget Sound Real Estate: The Covid-19 rollercoaster

That house you’ve always wanted just got a whole lot cheaper. Interest rates have tanked on fears over COVID-19 (coronavirus) as money flows out of the high risk/high reward stock market, and into the low risk/low reward mortgage bond market. As money floods the bond market, the yield (or interest rate) that homebuyers need to pay falls.

The group of people who really took advantage of this was homeowners refinancing. Lenders were absolutely flooded with refinance applications last week as rates got as low at 2.99% for a 30yr fixed, if you locked on the right day. But with this wave of applications, mortgage banks started getting overwhelmed as their systems literally couldn’t handle the number of people refinancing.  They did something I have never seen before. Mortgage company actually stopped allowing people to lock in refinances on Tuesday because they knew that their systems couldn’t handle the business and today, we are seeing companies all around the US price their refinances at a ridiculously high price in order to stop people from refinancing.

For example, a person who would have locked in at 3.125% last Friday, would be quoted around a 4.625% today, not because the bond market has dropped that far, but because they simply don’t have the resources to handle all of that business. Purchases are a different story. As lenders shut off the refinance boom, purchases are still being priced at a very favorable rate, so things are still great if you are in the market to buy.

I don’t know how this will shake out, but Warren Buffett once said that as an investor, it is wise to be “Fearful when others are greedy and greedy when others are fearful.”   This market climate that we’re in is literally what he’s referencing.

There are a lot of unknowns surrounding COVID-19 (coronavirus), and that has people selling out of the stock market and buying into the bond market, thus lowering mortgage interest rates. Whether you’re an investor in the stock market or housing market, and you believe things will shake out ok regarding the COVID-19, now might be your time to make like Warren Buffett and buy. Even with the rise in interest rates for refinances, it doesn’t mean we’re done with super low rates.  No one knows where the bottom will be.

What I do know is that the stock market doesn’t necessarily trade on current data, but emotions and expectations over what the data might be. The stock market is down now because everyone is expecting the near-term data to come in poor, which it likely will, given what’s going on. But as soon as the sentiment changes to “Ok, we’re over the Coronavirus scare, and I can see the time where things will return to normal” the stock market will rebound, and the bond market will fall, thus increasing mortgage interest rates and eroding this purchasing-power window of opportunity. This is a window opened by fleeting emotions, and will likely close as quickly as it opened.  We just don’t know what will happen between now and then.

Scott Sheridan is a Loan Officer with Primary Residential Mortgage, Inc.  Being in the mortgage industry for four years, Scott brings a fresh millennial flair to the industry. He is well-versed in the most modern, efficient, and convenient ways to get things done. Scott combines these skills with a genuine love of his work and recent experience in what is it like to be a first and second-time home buyer.  You can follow Scott’s weekly market updates on his PRMI 

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