A Look Back at 2020

Question of the week:  A look back at 2020

Answer: Okay there wasn’t really a question or an answer, but I have a template and you are used to reading the WR&MU with a Q&A as lead so I’m sticking to it.

Because next Friday is Christmas, and the last Friday of 2020, this will be my last full WR&MU of the year. As such, I feel it appropriate to take a look back at the year.

The new year and decade started with conforming interest rate at 3.5% and concerns about economic impact, primarily due to energy costs, with rising tensions between the United States and Iran. We ended 2019 with 3.5% unemployment and nine straight years of the economy adding two million or more jobs to the economy each year. Wages had grown 1.8% in 2019 and inflation 2.1%. For the year GDP grew at a modest 2.3%.

In mid-January the Trump Administration and China agreed to phase one of a trade agreement, slowing the trade and tariff battle that had started in the Spring of 2019.

On Friday January 31st the WR&MU had its first mention of the coronavirus. In the update we mentioned that the news of the virus had pushed Trump’s impeachment trial further down in the news and that investors were worried about the impact of the virus on the Chinese economy and repercussions that could flow through the U.S. economy. The concerns were enough to push the conforming rate to 3.375%.

February the spread of coronavirus reached Europe, towns in Italy were closed (our daughter was travelling there at the time) and uncertainty was the mood in the markets. Uncertainty as to how wide would be the spread of Covid-19 and what it could mean to our economy and markets. At home, the unemployment rate in February was 3.5% and retail sales were moderately strong.  Through the month the conforming rate dropped to 3.125%.

The first week of March investors and the public were surprised by a deep cut by the Federal Reserve of its benchmark interest rate. The move was made as a precautionary move to protect the economy from a severe setback that may (at the time “may” was the view of the Fed) dramatically slow the commerce in the United States. Mortgage rates dropped to 3.00%. Markets were in turmoil and the mortgage industry was seeing lenders raise and lower their rates as much as one-half a percent from day to day as they tried to control the flow of business into their pipelines.

Sunday March 8th was when a singular event broke open the dam and started the flood of actions that saw markets plummet, rates spike and the closing of schools and cancellation of events. On that Sunday talks between the Russians and Saudi Arabia over oil production fall apart and the Saudi’s dropped their price for a barrel of crude. A price war was on and the price for a barrel of oil in the United States dropped over 20%. Investors, concerned for what this meant for the economy, bond markets and jobs absent any concerns of the coronavirus hit the sell buttons and the Dow Jones opened 7% lower than its close on Friday.

We saw consumers panic buying and stores ran out of paper goods, canned goods, meats, rice, noodles and other staples. Slowly, officials around the nation began to impose closings of public places and private businesses.

Investors reacted buy selling everything and holding cash, as a result stock prices continued to fall and rates spiked. Climbing from 3.00% on March 6th to 3.75% two weeks later, despite the Federal Reserve cutting its benchmark rate to 0%.

Not only did the Fed cut rates, it also announced it would be purchasing $700 billion of U.S. treasury notes and mortgages. Known as “quantitative easing”, very prominent during and in the aftermath of the Great Recession, the purchase of interest bearing assets is meant to stabilize those markets, lower rates and create an environment where money can be borrowed cheaply to stimulate the economy.

By the end of the month our “normal” was in place for 2020 with closings of schools, retail outlets, bars and restaurants, and “non-essential” businesses across the country. A small internet company called Zoom saw its stock price double from the beginning of the year to March 26th (as I write this it is up 577% year-to-date).

In the last week of March, the $2 trillion CARES Act was passed in Congress and signed by President Trump that send checks to most tax payers, provided loans to businesses, increased unemployment benefits and send funds to state and local governments. In the legislation were regulations that mortgage lenders had to accommodate borrowers who requested a deferment on their mortgage payments without requiring verification of a Covid-19 related hardship, student loan lenders similarly had to offer payment deferments and payments on government backed student loans were suspended.

As well, the Fed announced it was lifting its $700 billion cap on the purchase of U.S. Treasury debt and mortgages and would buy an unlimited amount to push rates down.

March saw the economy shed 700,000 jobs and the unemployment rate jumped from 3.5% to 4.4%. Retail sales in March dropped 8.7%, mostly due to auto and gasoline sales as people stopped buying large ticket items and commuting stopped.

Most lenders stopped lending on jumbo mortgages in March. Underwriting guidelines tightened in regards to employment verifications and for how self-employed borrowers were analyzed for proof of continuing income.

After rising over 2% in the last quarter of 2019, GDP shrank by 4.8% in the first quarter of 2020.

Conforming mortgage rates fell from 3.875% the prior week to 3.5% to end March; high-balance rates however climbed to 4.5% and we saw a complete disconnect between conforming and high-balance rates as lenders looked to slow the flow of business.

April saw a loss of a staggering 20 million jobs; the unemployment rate went from a 50 year low in February to 14.7% in April. What had initially been announced as a two-to-three-week lockdown on businesses to slow the spread of the virus to flatten the curve of new cases and prevent hospitals from being overrun continued through April and appeared to be in place for a while longer.

The spread between conforming and high-balance rates decreased and April ended with the conforming rate at 3.125% and the high-balance at 3.5%.

Through the rest of the Spring officials allowed more businesses to open and economic activity, job creation increased. An increase in cases after Memorial Day weekend caused some concern about re-imposition of shutdowns, but most of the nation retained the same regulations through the Spring and Summer once businesses were allowed to open. Rates drifted down to as low as 2.625% by early July.

As the economy started to chug along, approximately 10 million jobs were regained through the summer, rates bumped up to a pretty stable level 2.75% into October. The biggest shake up to the mortgage markets was a fee of 0.500 points (one-half of one percent) that the Federal Housing Finance Agency required Fannie Mae and Freddie Mac to impose on all refinances. Originally slated to begin a few weeks after the announcement in September, the fee was moved to December, and lenders began pricing into their refinance rates in October.

As we end the year the nation is experiencing spikes in positive Covid-19 tests and a dramatic increase in hospitalizations. The result has been a return to the shutdowns of March and April and a spike in unemployment as wage earners are once again being laid off. The concern about the economic impact has caused rates to dip from October through December to date.

Throughout the pandemic, real estate sales have been extremely strong. With historically low rates greatly increasing affordability, buyers across the country flooded markets. Whether looking to purchase their first home, buy a home with more space, move to an area with bigger yards, buyers were finding they could move up or move in for near the same housing payments they are currently making. As a result, in many areas, especially California, home prices surged through the year. Which also means equity has greatly increased for those homeowners who remain in their homes, offering opportunities for pulling equity out of their homes to finance remodels, college tuitions or the purchase of second homes or investment properties.

In early February the Mortgage Bankers Association predicted $1.9 trillion in mortgages would be funded in 2020. The latest estimate is that close to $4 trillion mortgages will close in the United States this year.

Looking back through the WR&MU from the first three to four months of the year several thoughts come to mind. First, it seems like a few years ago we were worried about trade wars and possible conflict in the Middle East. Second, while remembering somewhat the day-to-day, week-to-week feelings as we received more news of the coronavirus, started seeing daily infection and death rates. Uncertainty increased, a sneeze or a cough had people looking at you sideways and yourself having a question in your mind, “do I…”

What do you suppose your reaction would have been had I written in the January 3rd WR&MU update:

Through most of 2020 I, and most of you, will be working from home. You may go to your office ten to twelve times after February, if at all. You will be conducting meetings with clients and business associates using the video camera on your laptop or phone, and some meetings will have ten, twenty, seventy or more people actively engaged. Your kids will be using the same program for their classes, you will be using it for yoga, seeing your parents and having happy hours with your friends. For those who wear suits and formal business attire you will see your dry-cleaning bills drop nearly 100% as you may wear a business casual shirt or top, but likely will have on shorts, jeans or pajama bottoms.

This is one of those calendar years where December 19th is the last update of the year, and until January 8th as the next two Fridays are holidays.  

Have a question? Ask me!

Congress faces a deadline of midnight tonight to pass a spending bill for 2021 and a stimulus package. As mentioned a few weeks ago, the biggest sticking points were inclusion in the package of liability protection for businesses, schools, non-profits and other employers (Republicans) and substantial financial relief to state and local governments to offset losses due to decreased tax revenue and increased expenses due to the pandemic (Democrats). Also as mentioned, it appears both sides are willing to set aside their “must haves” in order to pass a stimulus package that likely will include checks directly to tax payers, increase in unemployment benefits, and another round of payroll protection loans. Over-riding the stimulus package negotiations is a federal government shut down if a spending bill is not passed. In years past a short-term funding bill would be passed to cover costs until a full bill could get through the House and Senate, it is looking like no such agreement will occur this year. As this is written the funding deadline is about eight hours away. Knowing that they have wrung out the last amount of political benefit they can get with their bases, and voters in Georgia, the politicos should get both passed before the deadline.

Rates for Friday December 18, 2020: Rates slip from last Friday to reach our lows from four weeks ago.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS: Rates remain flat from last Friday as investors are in a wait-and-see mode for a stimulus deal.

30 year conforming                                         2.375%   Flat

30 year high-balance conforming               2.625%    Flat         

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

As our Jewish friends and neighbors conclude their Hanukkah celebrations this evening, and many others prepare for a Christmas like no other, we find our family and community traditions challenged, or set aside. For the Smith family we will miss our traditional Christmas Eve gathering at Leslie’s sister’s house, where besides the seeing of family members, we also enjoy the most perfectly cooked rib roast year after year.

As well, most year’s Leslie’s mother stays with us Christmas Eve and Christmas nights and is able to enjoy opening presents and dumping out stockings in the morning with monkey bread and coffee. Christmas evening, we usually host dinner with the family and toast each other.

For the past ten years or so, we would leave the Friday or Saturday after Christmas for Scottsdale where the four of us stay for the week, relaxing, playing card games, seeing the Christmas movie releases and just enjoying being together.

With these traditions deferred this year, we look forward to our daughter returning tomorrow from Boston after being there since August and enjoying a quiet holiday season before both girls leave for their respective schools in Boston and New York City in January.

We are very grateful for everyone who entrusted us with their business, their referrals and support in 2020. As we conclude the year we will raise a toast to all and pray for 2021 to bring us back together in person, able to shake hands, hug and clink glasses.

Merry Christmas and Happy New Year, here is 2021 bringing positive change to us all.

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog