Almost 200,000 Americans, and over 900,000 humans have passed away this year from Covid-19. I’ve been through excruciatingly difficult conversations with friends who’ve lost parents and siblings. Two friends have had to close their businesses permanently. My brother was supposed to get married on Saturday; but he and his fiancé have tearfully postponed their wedding for a year (thanks for doing so, Ian and Lin). In April we endured a level of fear I’ve only otherwise felt with a child in the hospital – I had a fever for 2.5 weeks and had Covid-like symptoms for much of the time. But I tested negative for the virus and am glad to be past the symptoms.
My experiences are not unique – and I’m confident you can deeply empathize with me as the pandemic impacts us all, some much more than myself.
It’s been six months since the World Health Organization called Covid-19 a pandemic, and it’s been six months since I googled “what’s the difference between pandemic and epidemic.” And, six months ago we brought our newborn baby Moe home from the hospital and I wrote about the calamity happening in financial markets, and how to fix it. Read my post here: https://alexjaffe.com/volatility
The world is in a mess in numerous ways, and Covid-19 is not the only issue at hand, but it’s all I’ll address today because this post is about financial markets and what the federal reserve is doing to stabilize them in response to Covid-19. And because of the federal reserve, financial markets feel stable, at least to me.
Well, the federal reserve fixed financial markets. It has not been perfect, nor has it been easy, but they’ve done their job. As of yesterday the Federal Reserve has purchased $1.038 Trillion in mortgages. They’ve also bought $1.898 Trillion in treasury bills. Still, more than twice as many Americans are out of work compared to this time last year. I don’t have data on this, but anecdotally most everyone I’ve been speaking with either have had their income cut and/or their outlook for their income is negative.
But I’m going to ask you to reflect on the past six months. Think about the volatility in financial markets and how much uncertainty you felt.
Do you feel the same way?
My kids are in virtual school. We’ve been working remotely for six months now. It’s been a HARD year. But I’m used to it, and I feel like I’ve got a handle on how real estate and the economy will exist in the pandemic. Consider how much money left financial markets in March and how much (now) is invested and reflect on how despite the unprecedented challenges in the economy, stock markets are near record highs.
Since June the federal reserve has bought $4-5 Billion in mortgages a day, stabilizing the market. Through several press conferences and meeting minutes, Chair Powell and other members of the board have committed to buying an unlimited number of mortgages…whatever it takes to encourage economic growth.
In March I called for the federal reserve to buy more – much more. They’ve done that. They are on pace to buy half the mortgages created this year and (if nothing changes) will buy a similar percentage next year.
The federal reserve forecasts interest rates and projects their intentions so that markets can anticipate their actions, and they’ve pledged to continue this activity this year, next year, and the year after.
What does this mean for you? It means that the unprecedented efforts to stabilize the economy…to encourage growth…to promote maximally possible employment…will continue.
Low interest rates are here to stay for some time. How low will they be? It all depends on how many mortgages the federal reserve buys. Since they are quite literally buying half of the market, if they pull back in buying mortgages then rates will rise. If they decide to ramp up purchasing, rates will fall.
Without the federal reserve’s interventions, credit would not be flowing at all near the level it is right now. Rates would be far, far higher. So many more people would not be employed. So many more businesses would be closed.
And thanks to the federal reserve, who is buying the loans we are selling, we’re selling a lot of loans. First Home Mortgage (which is the largest purchase mortgage lender in MD, and 4th largest in DC) has set records almost every month since the pandemic began. This takes tremendous work – our 500+ employees have put in a jaw dropping number of hours to sustain business at 2-2.5x normal, for months on end.
At some point the federal reserve will pull back on buying mortgage backed securities. At some point rates will rise. It’s hard to see that future at this point, while we are in the pandemic. But once we’re “past” the pandemic, I do think rates will rise suddenly. But for the record, I tell clients I don’t predict interest rates because I’m wrong half the time.
Until then, we intend to keep busy. We’re enjoying helping our clients finance or refinance their homes more affordably than we could ever have imagine.
And we’re growing!
Our team of three becomes a team of four on Monday as we welcome Jessica Argueta to the Alex Jaffe team. We’re excited to have her – she comes to us with four years of experience as a housing counselor. She’ll help us continue to help our clients make financially sound decisions and finance their homes efficiently, reliably, and affordably. We’re excited to have her.
Learn more about the Alex Jaffe Team: https://alexjaffe.com/about
See my March blog post on volatility: https://alexjaffe.com/volatility
Questions? Reach out to me: firstname.lastname@example.org
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Federal Reserve data source: https://www.newyorkfed.org/markets/data-hub