Why Are Interest Rates Dropping So Low in 2020? | Housing Market Implications

07-27-2020 Home  »  Marketing  »  Why Are Interest Rates Dropping So Low in 2020? | Housing Market Implications

Unless you’ve been living under a rock, you’ll see that this world pandemic is causing all sorts of issues with the stock market and because of that, we just saw the lowest interest rates EVER in the last 50 years. 50 years. What I want to talk about today is, what in the hell is going on with our financial economy? AND how it’s relating to the mortgage industry in America right now.

Since I’m a mortgage lender, things have been insane for me. I am in the THICK of this epidemic. I literally have been receiving 30-50 calls and texts a day and hundreds of emails from people either thinking about refinancing their homes or just wanting to know what the hell is going on with rates right now.

So there’s A LOT that I want to dive into today to actually explain WHY interest rates are so low, and potentially where they are going. Because right now, we are in an INSANE financial frenzy. 

First and foremost let me get you caught up to speed with what has actually been going on.

The Feds issued an emergency rate cut on March 3rd, 2020 of 50 basis points (WHICH IS INSANE). Like so insane we haven’t seen this much movement since 2008. Usually rates move anywhere from 1-6 basis points each day in either direction. So 50 is UNHEARD OF. AND this isn’t what started this frenzy but it’s actually what amplified it.

Prior to the rate cut, most products we buy in America come from China. So when people can’t work in China, it impacts our supply chain.

BUT… did it REALLY impact our supply chain? Sure a little bit. But nothing crazy. We’ve gone through much more drastic supply and demand changes over the last few years when it comes to oil. In fact the main reason the Feds cut rates was because Trump is all about a strong economy.

When the economy is great, he looks great. When the economy is bad, well he just looks like a frustrated orange.

Oh and I’m not for or against Trump. So I don’t want to get too political and hurt people’s feelings here.

I’m just saying that the economy is a direct correlation to Trump's 2020 presidential campaign. So when this epidemic slowly started getting out, Trump wanted to keep the economy strong. And how do you do that?

Well you lower rates.

You make money cheap. When borrowing money is cheap, people go out and get loans to buy things. We’ve seen that with the housing market over the last 6 months. Rates have been dropping so more people are out buying homes. Which means demand is high and supply is low, boosting prices and increasing spending, aka leading to a strong economy.

So that was the strategy.

Kill the slight decline in the stock market and this whole epidemic by SLASHING rates even more. So what happened? Well everyday after March 3rd mortgage interest rates TANKED. When I say tanked… I MEAN WWII Invasion of Normandy Tanked.

I had 6 refinances in a single day hop on my desk. The Friday of that week (so March 6th) we saw the lowest interest rates of this entire ordeal. 50 year lows.

Media and New Stations are BLOWING this up saying you need to refinance and rates are mega low and blah blah blah.

Then March 10th happened. The Fed Rate Cut absolutely backfired in regard to the mortgage world and the stock market. It sent Americans into a frenzy. They saw the rate cut as the government’s last resort to keep our economy strong, and volatility in the market went crazy.


ONE:  Lenders got SWAMPED with refinances. 

Because the demand was so high, we couldn’t keep up with the supply.

Let me break this down. 

The demand was already high. So there’s not enough manpower for how many loans started that week. I’m not exaggerating here, but I was pulling all-nighters to try and keep up. Because of this Wells Fargo was literally quoting people 90 days to close their refinance. The big banks couldn't handle it, and us brokers are barely getting by since we can work around the clock.

But wait, there's more. 

What ENDED UP happening was, lenders and banks were artificially ramping up rates to DISCOURAGE people from refinancing. Literally rates should be in the 3.375% range for 30 year fixed right now but banks are now quoting 5% because they don’t want any more refinances. They can’t handle it. They aren’t trying to slow down refinances, NO. They are trying to halt them entirely.

THEN to add on to that, on March 10th the 30 year (aka mortgage rates) jumped 84 basis points. Insane. What happened the next day on March 11th? Oh yeah they jumped up another 66 basis points. Then March 12th you ask? Yup we’ll crank that sucker up another 87 basis points.

So, two things happened, rates artificially went up because demand was unheard of AND the actual rates starting cranking up as well so it was just a double whammy in the mortgage industry.

I’m still getting people calling me saying, “hey the stock market is trash which means rates are really good! Can I refinance?” And I’m like, “well which rate do you want me to quote you at? The pricing at 8am, 11am, or 1pm?” Because every minute we don’t lock you in, rates are rubberbanding and moving drastically. Every minute.

So that’s the Mortgage side of what’s going on but something else happened after that massive rate cut.

TWO: People think we’re going through a damn apocalypse and since the economy has been too strong, everyone thinks this is where we take a turn downwards. When the Feds cut rates, it caused so much unrest with the American population that people started selling everything. Bonds, Notes, Stocks. EVERYTHING. 

More panic means more volatility and since the media is blowing this thing WAY out of proportion, it’s literally killing our economy. Hearsay is killing our economy. Not actual facts. Hearsay.  

Nobody is worried about what’s going on with the Russians in regards to oil right now. Which is WAY more worrisome because that’s a hard correlation to our economy VS some media outlets trying to get their rocks off with increased ratings when they talk about this beer problem.

So that’s what happening in our country right now and honestly… across the world.

The housing market is still on fire right now, and people are still spending when it comes to major purchases.

But that leads to the next question I get a lot, “Shawn, where are rates headed then and where is the economy headed? Every major recession has always yielded lower interest rates to get us out of the recession. Since we already had low interest rates and that didn’t help, what are we going to do?”

Well nobody knows but if I had to guess (and what is my opinion worth) once lenders and banks catch up on all this refinance business. They will stop artificially raising rates bringing them back down to what they should be at. That will bring home purchases and refinances back to manageable and realistic levels.

So to do that… I think in time (call it a couple weeks – maybe months)… we’ll see even lower rates to try and stimulate even more spending.

Some countries have tried negative rates to achieve this, not sure we’ll make it that far. But honestly who’s to say. I feel like this whole pandemic is just the higher ups in our society playing chess and all of us are the pawns.

We’ll see where this all goes but we’re still at INCREDIBLY low interest rates, and our housing market is still absolute FIRE right now. Contracts are coming across my desk daily. So don’t believe all the hype you see on TV and major media outlets. Do some research for yourself. And we’ll get through this like we always do.

But until next time.. stay thirsty my friends.

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About Shawn Malkou

He is the shawn-of-all-trades. Starting his entrepreneurship journey at the age of 14 with a dream and a single YouTube channel, he’s then since broken into countless industries. As the founder of Dream2Succeed, co-founder of DishTheDeal, co-founder of DirectionDesk, and lover of all things media – Shawn prides himself in picking up a new skill quickly to then share with others.

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Ready for the
next level?

Hi, I'm Shawn Malkou. I'm determined to help you succeed. My question is, are you ready?

Let's Do It