There’s a lot going on out there in the marketplace. So much in the news with so much uncertainty. Yes, all of us have to deal with lots of stress because of the unknown and what’s around the corner. Here are some thoughts on some of the things we are seeing:
- We’ve seen unprecedented refinancing of mortgages this past year. I guess for banks this has been a ray of hope with the low-interest rate environment. Refinancing volume has soared since the Federal Reserve dropped its lending rates to all-time lows this past spring. According to the Registry Review, New Hampshire lending institutions saw $17.24 billion in total residential refinancing volume. That does not include new purchases!
- The deluge of homeowners wanting to refinance their homes has created backlogs that banks and mortgage companies are struggling to work through. At the same time, they have new purchases and PPP Loan Administration.
- While mortgage refinancing is hot, using your home as an ATM is not. That’s good news, as we definitely do not want to go back to the circuit breaker that caused one of our previous recessions. Cash-out deals made up just 27% of all mortgage refinances, according to Blackknight, a mortgage data provider. What a difference from the Go-Go years when homeowners were using their homes like ATM’s for all kinds of purchases. The good news is today just over a quarter of all mortgage holders in the US are considered “Equity Rich,” having at least 50% equity as a nest egg rather than as ATM or bank account. But be careful, Tom Selleck is the new pitchman for promoting “reverse mortgages for seniors.” That is another topic for a future article.
- With the surge in refinancing, there is one thing to be cautious about. Fannie Mae and Freddie Mac, the government-controlled mortgage financers, will now be charging a new 0.5% fee on refinanced loans. This is in addition to all of the costly closing costs. This fee (or tax) was scheduled to start on September 1st. However, after intense criticism, the Federal Housing Finance Agency said it would delay the move three months to begin December 1st. Keep in mind Fannie Mae & Freddie Mac buy about 2/3 of all mortgages in the US. This could result in an average cost of $1,000 to $1,500 to be added to the cost of refinancing. As a member of the National Association of Realtors®, we have been strongly opposed to this “added tax,” especially at a time when homeowners are utilizing the equity in their homes just to make ends meet. It just hurts people at the absolute wrong time. When you dilute the benefit of refinancing to lower your payments, you discourage homeowners from doing so during the worst economic downturn due to the pandemic in almost 100 years. Fannie and Freddie justify this action by calling it an “adverse market refinance fee” because they say they will lose $6 billion from this recession and the projected COVID-19 losses. I understand that loans of less than $125,00 will be exempt. That’s the only good news.
- Other than refinancing, what else is going on? The stock market has been on a tear, with the DOW closing at an all-time high at 30,000, during a pandemic figure that one! The US Reports a record of 2,800 COVID deaths in a single day while hospitals are pushed to the limits. The CDC director tells us, “the reality is December, January, and February are going to be rough times, possibly the most difficult in US history.” That’s not good news. While we are waiting for the vaccine to be distributed, what happens in the interim? The stock market goes up to record highs while Bitcoin’s price reached an all-time high this past week, as it closed on $20,000. Who would ever think cryptocurrencies would reach this level? Some think the rally is only just getting started. Is this another bubble like the Tulip frenzy? Gold and silver have been accelerating. Try cashing in an ounce of gold for your food bill at your local grocery store…will it work? Who knows. All of these benchmarks are hitting record highs as jobless claims were still at high levels of 712,000 claims last week. In all, 20.16 million Americans are receiving some kind of benefits.
- In the US, almost 8 million people could be evicted while congress is back and forth, debating a new stimulus bill. Somewhere between $500-900 billion. The fed is printing money like crazy with massive debt and no end in sight. Yet futures rise over-optimism of stimulus talks.
- Also, jobless benefits will start to expire at December’s end, which could affect up to 12 million people. This sounds like a 4-alarm fire.
- Meanwhile, I remember my dad saying he was getting a 13% return on his CDs in the 1980s. Today’s new CD rates range from 0.20% to 0.70%.
- I also remember quoting customers 17-18% variable interest rates with a 5 cap over the life of the loan, and you could not get a fixed-rate mortgage. This was also during the 1980s.
- Today we have fixed-rate mortgages in the area of 2.920% for a 30-year loan, according to bankrate.com.
- At the same time, we have a severe inventory shortage of properties for sale, and there are small bidding wars going on to acquire certain properties.
Here we are looking into the winter of 2020-2021. What will it look like?… Who knows.
This article was written by Frank Roche. Frank is president of Roche Realty Group with offices in Meredith and Laconia, NH, and can be reached at (603) 279-7046. Please feel free to visit www.rocherealty.com to learn more about the Lakes Region and its real estate market.