Coronavirus and My Mortgage, Really?


How would the recent panic over the Coronavirus affect my mortgage?

Two things that you may never felt like they would be on the same plane. Let’s take a look.

The Coronavirus effect is spreading even faster and wider than the actual virus itself. Literally whole cities have been locked down, under quarantine. It just so happens one of those cities (Wuhan), which is the epicenter of this dreaded virus, is also a worldwide economic hub of manufacturing. To firms such as Apple (among others), a shutdown in the product chain means lower corporate earnings, which in turn weigh on stocks, and your retirements funds.

OK…simple enough, as this too shall pass…..

Only it doesn’t simply pass, it actually gets worse. The virus itself spreads, and the deaths rise, causing literal worldwide panic. Planes fly empty, as cruises also do. Several cruise ships throughout the world have been quarantined, and it’s passengers are literally stuck on the ship, like a giant floating Petri dish. Ports around the world close to not only these ships, but ships carrying goods and supplies emanating from the Far East. While our economy is literally the best in the world, other nations are not as fortunate. A dip in various earnings, causes Central Banks around the world to panic, fearing recession. The oil markets have a huge glut, because frankly, the demand for oil is down. Global GDP is shrinking.

And now the icing on the cake…

Even with (at the time) one death in the United States, the clamor from the press pushes the panic into a frenzy, which causes the Central Bank of the United States; the Federal Reserve, to cut interest rates, actually slash interest rates in a surprise move. This signals to the world, that the United States is caught by surprise, with no endgame, or bottom in sight. It indicates to the world, that the world’s best economy knows something the rest of us doesn’t and that news cannot be good. The Ten Year Treasury, which is the actual driver of mortgage interest rates, plummet to levels, literally never seen before. No one can pinpoint a bottom. Stocks trade in massive swings, costing some folks a great part of their retirement funds. People feel panic about the virus, and now also feel “less wealthy (called the wealth effect), and spend less. Already people are not going to very public place like the mall or movie theaters, because of the virus, now on top of that they feel “less wealthy”.

A Silver Lining?

The silver lining, if there is one, is that because the Ten Year Treasury has been in a free-fall, so have mortgage rates. Every sovereign wealth fund in the world is looking for safety for their money, so they turn to the United States, because at the end of the day, if they put say, $100 in U.S. bonds, they will at least make 1% interest ($101), whereas, anywhere else in the world (say, Germany) if you put $100 in their bonds, you will only end up with $98, a loss of two dollars (They have negative interest rates). The panic, although real, is not really based on economics, so panic will always win the day. There is going to be a time, more likely sooner rather than later, the panic will subside, and interest rates will climb, and most likely climb rapidly back to a “normal range”. While interest rates were low, during the crash cycle of 2008, the rates today are even lower. If you are sitting on the fence regarding refinancing or purchasing, you literally (and hopefully) will never see this kind of panic, and these kinds of rates.

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