After a long day of serving up fresh, hot refinance mortgages to my deserving customers, I popped into my local Publix to pick up a few things Brenda asked me to get.
It was about five minutes to closing, so I employed my keen knowledge of how they organize their store and moved swiftly through the aisles. I grabbed bananas in the produce section, headed to the back, then left and back up an aisle to get the aloe lotion. I was coming down the household cleaning supplies aisle when I saw four completely empty shelves. It was the bleach shelves. Empty.
I was stumped for a second.
A woman was walking past me. “You know, I heard of a lady in my neighborhood who is putting bleach on her bananas,” she said. “Crazy.”
Crazy indeed. As a mortgage banker, our world has been shaken and popped. Interest rates are lower than they have ever been. Ever. All of a sudden, everyone who has a mortgage is a potential customer.
And it’s because other industries don’t seem to be doing so well. I heard an airline economist talking about how small airlines in Europe and Asia might be put out of business. The manufacturing industry is scrambling to find new suppliers as the Chinese manufacturing industry, which makes up 20 percent of the world’s output, was pulled to a near halt. Armani closed its Milan headquarters last week.
Economists had been worrying for years that despite no tangible, visible signs of one, a recession must be on the horizon. The only real evidence seemed to be that we had gone too long without one. Now it’s possible this coronavirus outbreak could trigger one.
The Federal Reserve releases a jobs report the first Friday of every month. The report is their best guess at how many people were hired the month before and what the new unemployment rate is. It is typically the most important data point detailing the health of our economy. But the virus rendered March’s report almost insignificant. Why? Because the decisions to hire were made before the virus outbreak. And we are now living in a world after the virus outbreak. Next month’s jobs report will be walked up a red carpet.
It’s always amazing to me how unpredictable the economy really is. The stock market has been tumbling and the economy is slowing. It’s not because people lost the appetite or ability to buy stuff, but out of precaution, companies had to slow down making stuff. And people stopped traveling so much, so airlines are taking a hit. It’s kind of hard to book a cruise when you have a chance of having your ship stuck out at sea for a couple weeks while a deadly virus runs its course.
Many companies are taking a temporary hit with this virus. The question that has economist freaking out is can those companies survive? And what will they have to do to survive it? Lay people off? Shut down poorer performing segments of their businesses?
It’s a serious concern. So much so that the Federal Reserve held an emergency meeting and caught the markets off-guard by immediately cutting its Federal Funds Rate, the interest rate it charges big banks to store money, by 0.5 percent. The move was to encourage banks not to store money, but to put it out in the economy in the form of business loans, equity loans and other investments.
While the Fed rate isn’t directly tied to mortgage rates, it certainly had an effect. Investors, believing that if the Federal Reserve, the entity with the most up-to-date data in the world and with some of the best economists in the world, is concerned, we all should be concerned. So, investors pulled their money from the stock market and put it into lower-performing “safe-haven” assets, like 10-Year Treasury Bonds. When those bonds are bought in high-volume, their yields drop and mortgage interest rates along with it.
I am locking people into 15-year loans at 2.75 percent right now. While it’s great for me now, the banks are seeing all of their held mortgages go from 4 percent and more returns to near 3 percent returns. The good news is that homeowners who are refinancing are finding an extra couple hundred dollars a month, which maybe they’ll spend back into the economy. And maybe that will trigger something positive.
Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases.
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group