The Tidwell Report
The Stock Markets brake for the Coronavirus, which caused mortgage interest rates to sink close to all-time lows
February 1st, 2020
The real estate market is holding strong for entry-level housing and certain upgrade levels, but luxury is still showing weakness. Last week, I mentioned the Coronavirus and mortgage interest rates which I focus on this week:
CORONAVIRUS
*Less deadly but more contagious than SARS*
That is the reason the World Health Organization (“WHO”) declared a Global Health Emergency this week. Still, it is possible that the estimates are inaccurate due to underreporting, but the WHO is taking no chances nor is the US State Department, which issued its own rare level 4 advisory of “do not travel” to anywhere in China, as US companies also suspend China operations and restrict travel.
This was a heavy news week featuring the UK leaving the European Union, the US announcing a new Mideast peace plan, and the Senate advancing its impeachment trial of President Trump, but the Coronavirus outweighed them all in its potential for global impact. This outbreak is also causing the market narrative to change while increasing the odds of significantly slower global growth…one possibility, albeit a remote one, is that this could cause a global market downturn.
Early estimates suggest the impact of the Coronavirus on the global economy will be more significant than during the SARS pandemic in 2003 because China’s 16% share of the global economy is 4X what it was back then and China’s economy is currently responsible for 33% of all global growth. To complicate things, this outbreak coincides with the Lunar New Year in China, one of the most important holidays for travel and consumption when an estimated 400 million Chinese take approximately 3 billion trips over the 40-day festival period. Just to put things in perspective, Chinese consumers spent $150 billion last year in just the first week of the new Chinese New Year, so the toll this will take on the Chinese economy is undeniable.
The rising contagion level and the potential threat to the global economy was sufficient to stoke the fears of investors who actively modified the risk profile of their portfolios this week by moving out of stocks into less risky assets, like bonds. One promising sign is that there are 110 reported cases of patients presenting symptoms who have recovered and were discharged from the hospital. However, if severity does begin to rise along with contagion, then this may further fuel investor fears as the potential loss of life and economic damage rises.
It took something like the Coronavirus to cause stock markets to adjust and reassess to a less favorable outlook for earnings and economic growth. Not only did the risk reallocation prompt an overall stock market pullback this week, but it also sent bond yields toward their old lows, and mortgage interest rates now hover slightly above record lows. Ironically, bond returns are leading stock returns one month into the year.
According to guidance from one Wall Street bank, the impact of the Coronavirus on the Chinese economy will likely be most pronounced, but global markets may be more likely to stabilize since few protracted market declines have resulted from health crises, geopolitical risks, natural disasters or political turmoil. Thus, their stock recommendation was mostly to “buy the dip.”
REFINANCE ALERT
*Refi Recommendation Upgraded from Watch to Lock*
I am actually in the end of my own home loan refinance that started back in August–long story, but if I were thinking of refinancing, then I would lock my rate on Monday because mortgage interest rates are close to their all-time lows and generally do not remain there long.
While refi rates could move lower, it is more likely they start a slow climb back up. By locking in your refi rate now, you will be protected from the risk of rates increasing. On the off chance of refi rates decreasing further, you can lock in a lower refi rate with a different lender.
The U.S. Jobs report will be released next Friday so I’ll have that update for you next week.
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The Pulse of the Economy
For the week ending February 1, 2020
STOCK MARKETS
*drop on fears of Coronavirus*
Stocks had their worst week since October after investors grew concerned about the economic impact of the Coronavirus. The World Health Organization declared an international public-health emergency. This week the Fed left interest rates unchanged. The Commerce Department reported that the U.S. GDP, the broadest measure of the economy, grew at a rate of 2.1% in the fourth quarter of 2019, and at a rate of 2.3% for the full year of 2019.
By The Numbers:
- The Dow Jones Industrial Average closed the week at 28,256.03, down 2.5% from 29,989.73 last week. It’s down 1.0% year to date.
- The S&P 500 closed the week at 3,225.52, down 2.1% from 3,296.47 last week. It’s down 0.2% year to date.
- The NASDAQ closed the week at 9,150.94, down 1.8% from 9,314.91 last week. It’s up 2.0% year to date.
U.S. Treasury Bond Yields
*drop back to near record lows*
- The 10-year treasury bond closed the week yielding 1.51%, down from 1.70% last week.
- The 30-year treasury bond yield ended the week at 1.99%, down from 2.14% last week.
- We watch treasury bond yields because mortgage rates often follow bond yields.
Mortgage Rates
The Freddie Mac Primary Mortgage Survey released on January 30, 2020 reported mortgage rates for the most popular loan products as follows:
The 30-year fixed mortgage rate average was 3.51%, down from 3.60% last week.
The 15-year fixed was 3.0%, down from 3.04% last week.
The 5-year ARM was 3.24%, down from 3.28% last week.
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January 31, 2020
Month End Economic Update
By The Numbers:
- The Dow Jones Industrial Average ended the month at 28,256.03, down 1.0% from 28,538.44 on December 31.
- The S&P 500 closed the month at 3,225.52, down 0.2% from 3,230.78 at the end of 2019.
- The NASDAQ closed the month at 9,150.94, up 2.0% from 8,972.60 on December 31, 2019.
U.S. Treasury Bond Yields
*dropped in the first month of 2020*
- The 10-year U.S. treasury bond yield closed the month at a 1.51%, down from 1.92% on December 31.
- The 30-year treasury yield ended the month at 1.99%, down from 2.30% on Dec. 31.
Mortgage Rates
*dropped in January*
The January 30, 2020 Freddie Mac Primary Mortgage Survey reported that:
- The 30-year fixed mortgage rate average was 3.51%, down from 3.72% on January 2, 2020.
- The 15-year fixed was 3.0%, down from 3.16% on Jan 2.
- The 5-year ARM was 3.24%, down from 3.46% on January 2 ,2020.
Have a great weekend!
Copyright © 2020 Kevin Tidwell Real Estate, All rights reserved.
