Effects never cut just one way with the economy. According
to the social laws of thermodynamics, so to speak, every phenomenon causes a
paradoxical reaction. In economist speak, this tendency is called a trade-off. As
in: A global pandemic sends markets into a tailspin, and people start
purchasing houses at fire-sale prices.
An article in CNBC
last weekend reports on the latest mortgage rates. They have apparently hit a
record low. A fixed interest rate on a 30-year loan, a typical time frame for
mortgages, is now about three percent.
The precise numbers vary, depending on the borrower's
financial profile. The client with a more desirable credit score and so on, of
course, receives a lower rate. On the flip side, the person whom banks deem
risky might have even more difficulty than normal because of the uncertain
financial climate.
Several factors are contributing to this trend. During a
recession, government-backed bonds with their low yields but relative safety
become more attractive. As a result, capital flies from speculative venues like
the real estate sector.
As people find themselves strapped for cash because of
income dips, Uncle Sam has stepped in to pick up a measure of the slack. The government
and private sector actors offer so-called "mortgage forbearance plans." The
policy creates a grace period during which payments can be delayed for as long
as a year without risk of foreclosure. Approximately 4.7 million people have
taken the option so far, mostly through the public alternative.
Another cause could have to do with coronavirus fears.
People are more reluctant now to move to more dense population centers—cities
like New Orleans. Under usual circumstances, demand would be highest in these
places, but right now, the market is as dry as a bone.
Ultimately, the lenders take their cues from the central
bank, or the Federal Reserve. Traditionally, the Fed takes the Keynesian
measure of lowering interest rates in order to combat unemployment during
economic crises.
The current moment will surely be remembered as a retrograde
time of stagnation and shrinkage. It's an ironic twist, considering defaults in
mortgage-backed securities precipitated this country's previous financial
meltdown. At the moment, the housing sector is looking like a happy anomaly on
the radar.
