21-Mar-20 – Despite necessary behavioral changes being made across the country to stem the COVID-19 outbreak – avoiding travel and shopping; closing schools, restaurants, and bars; and banning mass gatherings – the mortgage market is booming.

On March 19, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgages averaged 3.65 percent, up from 3.36 percent a week earlier. A year ago, 30-year fixed loans averaged 4.28 percent. On March 19, some Chicago-area lenders were charging as little as 3.25 percent on 30-year fixed loans, reported RateSeeker.

On March 5, fueled by worldwide investor panic sparked by the spread of the coronavirus, average 30-year fixed-rate mortgages plummeted to 3.29 percent, the lowest rate ever reported by Freddie Mac’s survey, which dates to 1971.

However, on March 19, mortgage rates rose for the second week in a row as lenders increased prices to help manage skyrocketing refinance demand, which has generated $391 billion in refi loans since late 2019.

“This is expected to be a short-term phenomenon as lenders work through their backlog of applications,” said Sam Khater (left), Freddie Mac’s Chief Economist. On the purchase front, Khater said daily loan purchase applications were rising as of mid-February but have started to decline.

On March 15, the Federal Reserve cut its key rate by a full percentage point to a range between zero and 0.25 percent and said it would buy $700 billion in Treasury and mortgage bonds. The Fed’s surprise announcement signaled its rising concern that the viral outbreak will depress economic growth in coming months, likely causing a recession.

The virus sparked a panic on Wall Street, resulting in a 30 percent decline in the Dow Jones Industrial Average in March. Retirees experienced a 25-30 percent drop in the value of their 401K accounts, which likely will take years to recoup.

The Fed’s aggressive actions are intended to keep financial markets functioning and loans flowing to businesses and consumers. Otherwise, as revenue dries up for countless small businesses that have suddenly lost customers, these employers could be forced to lay off workers or even seek bankruptcy protection in some cases.

By slashing its benchmark short-term rate and pumping hundreds of billions of dollars into the financial system, the Fed’s recent moves recalled the emergency action it took at the height of the Great Recession. Starting in 2008, the Fed cut its key rate to near zero percent and kept it there for seven years. The central bank has now returned that rate – which influences many consumer and business loans – to its record-low level. As more businesses across the country see their revenues dwindle as consumers stay home, many of them will seek short-term loans to maintain their payrolls.

The Fed said it has dropped its normal requirement that banks hold cash equal to ten percent of its customers’ deposits, thereby allowing banks to lend that money instead. It also said banks can use additional cash buffers that were imposed after the 2008 financial crisis for lending.

Meanwhile, the Trump Administration is promising a $1 trillion bailout for Americans in the form of monthly checks of $1,200 to $2,400, plus $500 per child. And, Bank of America has launched a mortgage forbearance program allowing borrowers to pause home loan payments on portfolio loans.

Work-from-home crowd is realizing their homes are too small

Chicago REALTORS said along with rock bottom mortgage rates, another boost to the spring home-hunting market over the past couple of weeks has been the “home stress test.”

Apparently, with Chicago’s restaurants and bars closed to help contain the virus, many businesspeople who are hunkered down and now working from home surrounded by family are beginning to realize they need a bigger house or condominium.

Some worried home buyers are wavering and postponing closings, while other sellers are taking their properties off the market. “Ultimately, the virus will run its course and the U.S. economy will resume a normal level of activity,” predicted Fed Chairman Jerome Powell (left), though he did not speculate on when the rebound might occur.

There are many unanswered questions. Why hasn’t the federal government frozen stock market trading to prevent further consumer losses, especially on retirement accounts? Wall Street investment managers continue to make millions of dollars on short sales, a bet that stocks will fall lower, or by buying back corporate shares at bargain prices.

If Uncle Sam has $1 trillion for bailout, why doesn’t the federal government release some money to help pay off all college student loans so Millennials can become homeowners? Home buyers would inject billions of dollars into the economy by purchasing furniture, lawn mowers, and other household items.

And is the coronavirus a bioweapon? Dr. Francis Boyle, author of the Biological Weapons Anti-Terrorism Act of 1989, has suggested that the virus escaped from a government lab in Wuhan, China, though many medical experts dispute this.