Refi Boom!
If you haven’t evaluated your current mortgage rate, now is the time. The 30 year mortgage is hovering around 2.75% and the 15 year mortgage is closing in on 2.50%. The economic turmoil caused from the pandemic hasn’t been all bad. Homeowners and prospective buyers are benefitting from lower interest rates. It’s become the best time to buy or refinance a home. There will be well over $1 trillion in refinancing originations this year and this translates into real savings for homeowners.
On the bank quarterly conference calls, the common challenge for management was struggling to keep up with mortgage demand and all the paperwork from refi’s. Last quarter, bank profits would have been at a record if they were not setting aside money for future loan defaults. This refi boom should continue for the foreseeable future. I don’t expect interest rates to increase any time soon until job growth picks up. The unemployment data is going the wrong way and it’s very possible that interest rates could continue to drop. Yesterday, CNBC wrote an article on mortgage rates and said that rates could go down to 2.25% on the 30-year fixed. This would all depend on if the U.S. economy shuts down again.
The headlines continue to be negative as daily infection rates are at highs. The good news is the time table for the vaccine has moved up to later this year. Vaccines that are under development by Moderna Inc. and the partnership between Pfizer Inc. and BioNTech SE should be available in 6 months. This week Pfizer received $1.95 billion to produce 600 million doses of the vaccine with the first 100 million promised before the end of the year. The question on investors minds is what will happen to the economy when you fast forward to December?
If the vaccine is successful, life will return to normal overnight. My expectation is that interest rates will rebound and this refi boom will be replaced by an economic boom. Given this scenario, there is still time to refinance or buy a home in the next 6 months. Markets should gain more strength if phase 3 trials for the vaccine are positive. Never has there been a time that with just a flip of a switch an economic depression will turn into an economic recovery. In the meantime, the market volatility will remain elevated. This week the overvalued technology sector went up 5% to start the week and then down 5% in finish the week. By the end of the week, most account balances took a round trip and finished where they had started the week. I expect more of the same because most of the major technology companies are reporting earnings next week. Investors also continue to be torn between selling because virus cases are spiking and buying because the vaccine is just 6 more months away.
Stay safe!
