Can coronavirus sicken our healthy housing market?

By Jeff Lazerson

The average rate for the 30-year fixed mortgage fell to 3.29% in the week ending on March 5, the lowest rate since Freddie Mac began its survey in April 1971.

Landing at 3.29%, this week Freddie Mac recorded its lowest 30-year fixed-rate mortgage in its nearly 50-year survey history. And, the Federal Reserve dropped short-term interest rates by one-half percent. The prime rate is now down to 4.25%. Incredible!

This is certainly great news for the housing market. Not so much though for the travel, hospitality, oil and manufacturing industries.

How many more people will get sick? How many more souls will we lose? How much longer will the coronavirus spread until this catastrophic monkey wrench makes our red-hot economy turn to ice? At what point will employers be forced to cut jobs? Will home values decline? Will mortgage rates go negative?

Don Bailey is about as smart a soul as I’ve ever known. He was the CEO of Orange County-based Questcor Pharmaceuticals. Bailey took Questcor from 99 cents per share when he started to $90 per share when Questcor was acquired nine years later.

Bailey thinks the media tends to blow things out of proportion.

“The mortgage industry is the big winner. The economy is going to get hit for a while,” said Bailey. “Long-term, this will have no effect. Everything will come back.”

Orange County-based infectious disease doctor Antonio Arrieta thinks we don’t have enough information yet about coronavirus.

“We have no idea of the attack rate,” he said. “It’s increasingly apparent that some people have the virus without having symptoms.”

It will take some time before a vaccine is ready, Arrieta said, noting it will have to be tested for safety before it can be mass-produced and distributed.

But Arrieta is optimistic.

“The amount of stress being experienced is not (yet) justified,” he said. “Be calm.”

Raymond Sfeir, director of Economic Research at Chapman University believes the Fed cut rates to stop the stock market decline. But, he said, rate cuts won’t help the average person.

“Consumption won’t increase dramatically because the Fed dropped rates,” said Sfeir. “If people panic, consumption will get cut back further.”

Sfeir thinks the economic fundamentals are good right now. What about mortgage rates going negative? He doesn’t see that happening.

The Mortgage Bankers Association believes it’s likely there will be another rate cut either in a few weeks or at the next Fed meeting.

I’m hoping Don Bailey is right and the economy will come back. In that case, the mortgage industry stays the big winner. And, housing demand will continue to be strong and stable.

But just as some folks are more susceptible to coronavirus, some homebuyers and homeowners are less financially healthy and are too close to the financial edge to wait for the economy to come back.

Risk of job loss. Little cash reserves. No family or friends to borrow from in the event of a cash-flow crash.

While you should not dwell on this, you should at least think about having a Plan B — things like delaying a home purchase, selling your home or pulling out cash to be more liquid.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.