Tucson Mortgages Home Loan News 3-16-2020

By Todd Abelson NMLS #180858 on .

Week of March 9th, 2020 in Review

The economic calendar may have been quiet, but the news and markets were far from calm. Fears regarding the Covid-19 virus caused two halts in trading, on Monday and Thursday mornings, while closures, travel bans and cases of the virus all grew. The markets swung wildly throughout the week, with huge one-day drops on Monday and Thursday, followed by a rally on Friday. On Friday afternoon, President Trump also declared a national emergency due to the virus.

Then, in a historic move on Sunday, the Fed slashed its benchmark Fed Funds Rates 100 bp to 0% to 0.25% in an attempt to help the economic slowdown caused by the Covid-19 virus.

Consumer and wholesale inflation figures for February were released via the Consumer and Producer Price Indexes, respectively. While inflation always has the potential to move the markets, the reports took a back seat to the volatility and uncertainty surrounding the virus and its continued impact on world economies.


Market Madness

This year, March Madness applies more to the markets than basketball, unfortunately. Volatility was rampant throughout the week, and it started Monday just after the markets opened. Stock trading was halted for 15 minutes, as happens when the market falls 7%. This was sparked by a plunge in oil prices due to tensions between Saudi Arabia and Russia over oil production.

On Thursday, trading was also halted for 15 minutes soon after the markets opened, with the Dow ultimately tanking 2,300 points. This was due in part to several events that happened Wednesday night related to the Covid-19 virus. The NBA suspended their season, there is a travel ban from Europe to the US, and airlines are cancelling a massive amount of flights. And even more closure and cancellation announcements due to the virus have since followed both here and abroad, including schools, major sports and arts venues and even some countries’ borders.

Thursday also saw European stocks close 11% lower, their worst one-day drop due to fears about the virus.

However, Stocks here in the US did manage to rally on Friday. Yet, the overall decline in just 16 days from the peak of the market to now is 28%! Over 20% decline means we are now in a bear market … that ends the Bull market that began in 2009.


Fed’s Historic Move

After the volatile week in the markets, the Fed made a historic move on Sunday, announcing a 100bp cut to its benchmark Fed Fends Rate to zero.  This is the rate banks use to lend money to each other overnight so it’s important to note that this action does not directly impact mortgage rates on the interest rate cut.

The Fed also announced that it will do at least $700 billion in Quantitative Easing, purchasing at least $500 billion in Treasuries and $200 billion in Mortgage Backed Securities. Purchases begin Monday, March 16th with a $40 billion installment. The Fed will also stop the runoff of Mortgage Backed securities and Treasuries from its balance sheet…which no one is talking about.  This is significant, and coupled with the purchases, will drastically reduce the supply.

The Fed also cut reserve requirements for thousands of banks to zero, and it cut the discount window from 1.25% to 0.25%. The Fed did this because of concerns about liquidity.

Note that the Fed was due to have its regularly-scheduled meeting Tuesday and Wednesday March 17-18, but the emergency meeting over the weekend replaces this.

On Monday, as a result, Stocks opened at “Limit Down”, meaning that they were stopped from opening any lower.  The 10-year opened down 20bp to 0.77% and Mortgage Bonds rallied over 200 points.


February Inflation Not the Full Picture

February’s Consumer Price Index (CPI), which measures inflation on the consumer level, came in at 0.1% while the year-over-year reading decreased from 2.5% to 2.3%.

The more important Core rate, which strips out the volatile food and energy prices, was up 0.2% from January to February while it increased from 2.3% to 2.4% annually. This marks the 24th month in a row that Core CPI has been above 2%.

However, this report must be taken in content. Annual inflation will likely drop significantly due to oil prices dropping so precipitously. Also, the effects of the Covid-19 virus, which will likely lessen pricing pressures as businesses slow, will not be realized for a few months. Typically, when demand falls pricing falls, reducing inflation.

Meanwhile, the Producer Price Index (PPI), which measures inflation on the wholesale level, was weaker than expected in February. PPI was -0.6% from January to February, below the 0.0% that was estimated and decreased from 2.1% to 1.3% annually. The Core reading, which again strips out the volatile food and energy prices, was -0.3% for the month and year over year it ticked down to 1.4%.

Again, we will look to see the effects of the Covid-19 virus in future months as inflation will likely continue to drop.


Housing Highlights

There was some good news from the housing sector, as CoreLogic released their Loan Performance report for the month of December. Loans 30-days or more past due decreased from 3.9% to 3.7%, while seriously delinquent loans, which is defined as 90-days or more, dropped from 1.3% to 1.2%. Seriously delinquent homes in foreclosure were unchanged at 0.4%. Delinquencies remain near 20-year lows and we have seen even more of an improvement from great levels.

CoreLogic also released their equity report, showing that US homeowners with mortgages (roughly 63% of all properties) have seen their equity increase by a total of nearly $489 billion since the fourth quarter of 2018. This is an increase of 5.4% year over year. The average family with a mortgage had a $7,300 gain in home equity during the past year, and a total of $177,000 in home equity wealth.


Consumer Hack of the Week

The spread of the Covid-19 virus has, unfortunately, also brought a new wave of scams, ranging from products touted as miracle cures to fake charities set up to help those impacted by the disease.

Our friends at AARP shared these tips provide by the Federal Trade Commission and Securities and Exchange Commission to help you avoid any Covid-19 related scams.

First, be wary of anyone asking for money to help people diagnosed with the disease, especially if they want payment via prepaid credit cards. Also, it’s important to ignore any tips urging you to invest in hot new stocks related to vaccines for the virus and any product offers for cures. Vaccines take a long time to be thoroughly tested before coming to the market, and we will likely hear about them first from the CDC or World Health Organization.

Finally, browse carefully online as you search for the latest news and information. Scammers have already created fake Covid-19 hotspot maps that can download malware on your computer. Be sure to check any website URL and look for the secure symbol or padlock before browsing or downloading anything.


What to Look for This Week

We’ve got a busy week ahead with news from various sectors across the economy. First up are the latest manufacturing figures for March when the Empire State Index is reported Monday, followed by the Philadelphia Fed Index Thursday.

There will be news on housing Tuesday with the National Association of Home Builders Housing Market Index for March. On Wednesday, look for February Housing Starts and Building Permits, while Friday brings February Existing Home Sales.

February Retail Sales will also be reported Tuesday, while the latest Initial Jobless Claims releases Thursday, as usual.

All of these reports may take a back seat to the continued market volatility we’ve seen due to Covid-19 virus fears.


Technical Analysis Breakdown

Technical analysis will likely take a back seat due to the extreme moves in the market relating to the coronavirus, but they still have some importance.  Towards the end of the day on Friday, Mortgage Bonds were able to climb above their 50-day Moving Average and Fibonacci level of 100.411.  They are now in a new range with the next ceiling at 101.076, which is the 25-day Moving Average, with the aforementioned two levels now acting as support.  The 10-year ended the day at 0.98%.  Yields are in a massive range and have room to move higher until reaching the next ceiling at 1.087%.  If they start moving lower, potentially fueled by a rate cut next week and some Bond friendly news, there is a significant amount of room to the downside technically speaking.