fedres.30.10

No, I haven’t lost my mind. The large sell off in the stock market is actually good news for real estate. As the coronavirus virus spreads worldwide, stock markets have been getting hammered with huge daily fluctuations. But as stock prices fall, bond prices rise. And those same wild gyrations have driven bond yields down to historic lows. 

So, for people either wanting to buy a home or to refinance one, this is a golden opportunity.

It gets even better because the Federal Reserve took the unusual step of lowering the discount rate, the rate they charge banks, by one-half of 1 percent before its normal monthly meeting. Managers did this because they were afraid that this virus could impact certain businesses, like travel and manufacturing from China.

Last summer, I wrote about how interest rates nose-dived creating a unique financing opportunity. These things don’t happen often and usually are the result of big economic events causing a flight of capital into government securities. Back in 2016 it was BREXIT and last summer was the short-lived Inverted Yield Curve. Now it’s the coronavirus.

What’s interesting about this economic event is that it seems to have global implications, so the drop in the yield of the benchmark 10-year government Treasury is the lowest it’s been in more than 100 years. The yield as of early March is under 1 percent! Mortgages move in tandem with the 10-year bond, but somehow the banks are dragging their feet in lowering their rates as much as they should. What a surprise…

It’s really impossible to give exact rate quotes as there are so many variables that go into the calculations, like credit score, income, lender fees, etc. But for conforming FHA Loans, rates for 30-year fixed mortgages are 3.5 to 3.65 percent. A 15-year fixed mortgage is around 2.5 to 2.75 percent. If you can afford the payment, you should really try and get a 15-year mortgage. Over the long term this will save you a fortune in interest and you’ll own your home sooner.

The Fed announced after this rate cut that there could be further cuts even as soon as their next meeting later this month. 

This chart shows both mortgage rates and yields on the 10-year Treasury Bond since 2007. So, while your stock portfolio may have taken a big hit these past few weeks, here’s a great opportunity to cut your mortgage payment big time. This will be the gift that keeps giving for years to come.

Steve Hyman is the broker and owner of Century 21 Sunset Properties. He can be reached at 726-6346 or century21sunset.com.

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