Let’s talk CORONAVIRUS and the HOUSING MARKET.
Let’s talk CORONAVIRUS.
Written by Daniel Brown.
The media is swirling with stories about the spread of the Coronavirus from travel warnings to the stock market taking a nosedive. This is causing a lot of speculation, concern, and mostly fear. Some of it justifiable and most of it, in my opinion, just hype. The media loves this stuff because everyone tunes in and they get clicks.
Yesterday, the Federal Reserve cut interest rates by .5% in an attempt to help contain the coronavirus’s potential economic fallout. This is the first time they’ve made an emergency rate move since the financial crisis of 2008. This is not a rate reduction because the economy is tanking. This is a preemptive rate reduction to continue to keep banks lending and add liquidity to the market. What the Fed doesn't want is for banks to stop lending to businesses which can then push us into a financial crisis. The reduction in the rate was expected, but sooner than we all thought.
So, how does this affect the HOUSING MARKET?
Lower rates do not equal lower mortgage rates. I repeat the lower the Fed Fund Rate does not mean lower mortgage rates. When the Fed reduced rates Wednesday it did cause a pull back in the market, which was actually gained back on Thursday. Because of the pull back in the stock market people put money into bonds which then caused rates to go down. Rates are at the lowest they've been in some cases ever. I literally had a signing just yesterday with a buyer at 3.1%. That's a crazy low rate! These lower rates could cause a stronger demand for housing! Lower interest rates mean that you can afford more home. In our Instagram Live last week, we discussed that your rate has more effect on your affordability than the price of the home. This could also put a dent in the already historically low housing inventory. The Coronavirus could also cause some buyers to be HESITANT on buying because they are fearful of a recession or even coming into contact with other people.
With these lower mortgage rates, we will also likely see an increase in refinances. In my opinion, you should absolutely refinance your home right now or at least look into it. Rates can only go so much lower. In today’s market, rates and affordability aren’t the largest hurdle that comes to mind. It’s actually the overall lack of options! There isn't a lot to choose from, roughly 9,000 homes listed for sale in the Greater Phoenix area, and when you do find a home expect multiple offers. Sellers also don't have to do much anymore when it comes to repairs. Right now, seller's have all the power. For homebuilders, who rely on materials from China, it could also cause a major delay in the inventory to build new homes.
While there’s a lot of uncertainty right now, there’s NO NEED to panic! It’s possible that we’ll see a slowdown in the market, specifically in travel and entertainment, but it really depends on how people react and are influenced by the virus. Remember, the Coronavirus cannot slow down the real estate market, only people do that!
There will also be an end to this. No one knows when, but this outbreak will end. If the markets slowdown or even come to a halt there will be pent up demand for everything. We should hopefully see a V shaped or U shaped recovery. Could this event push into a recession? Absolutely. Could it take longer to get through than we think? Absolutely. The best thing to do is push forward and live your life. Wash your hands more, stay home when you're sick, and realize that this will pass.
How to Budget your money: This isn't from me, this is from people much smarter than me.
I believe you should learn to live off 70% of your income. Try to keep your mortgage or rent payment between 30 to 50% of your 70%.
I think you should be saving 10% of your income keeping 3 to 6 months of your basic expenses in cash. Have a rainy day fund.
The market is way down right now. This is a buying opportunity for all of us not looking to retire in the next few years. The market is on sale so continue to invest in your 401k and the stock market. Warren Buffet got rich buying when the market sold off. These events are buying opportunities.
Take the remaining 20% and pay down your bad debts. These are things like credit cards, auto loans, second mortgages, etc.
If you can stick close to this plan you will be in a good position regardless of what the economy is doing.
