“COVID-19 Versus the Real Estate Market”
Over the last couple of months, people around the world have been affected directly and indirectly by the unforeseen pandemic, COVID-19. This pandemic has mainly affected the stock market, labor industries, and small Mom-and-Pop shops that depend on daily transactions to allow their businesses to thrive. The U.S has reached nearly 3.3 million in unemployment due to COVID-19 which is causing Americans to become concerned on how they are going to survive during these unpredictable months ahead.
California’s implementation of the “Safe at Home” act has caused a rapid decline in the economy. Americans being out of work is creating limits on household funds which is causing more properties that are listed in the market to sit still or become expired. This pandemic has caused fear in majority of the population due to the rapid increase of those affected by COVID-19, therefore, most consumers are withholding their funds to ensure they are making the right decision when investing.
These economic changes, however, may be beneficial to consumers because it is forcing the Federal Reserve to lower borrowing rates to help stimulate growth in the economy. Lending corporations are now starting to lower rates which is incentivizing consumers to invest in the market. Previous years’ mortgage rates typically stood between 4–7% for 15 and 30 year mortgages. After the Federal Reserve’s implementation, rates are now between 1–5% for borrowing, depending on certain qualifications.
These investments will benefit consumers in the long run and most importantly, it will stimulate economic growth during the period of this devastating pandemic. This gives each financial industry time to adjust with the economic changes caused by COVID-19. With the Federal Reserve cutting borrowing rates which can be helpful not only to those in the market looking to purchase property or who make large investments, but also helping those who cannot afford to pay their current mortgage due to the incline of unemployment. Instead of people defaulting on their mortgages, this gives them the option to refinance their homes at a lower rate by bringing their mortgage payments down. This action is also benefiting consumers in the market who are looking to use the equity they have already acquired from their home, called a HELOC (home equity line of credit) while also, lowering their APR (Annual Percentage Rates) for current credit cards they may have.
In this case, the government is essentially leveraging their money to promote a heathy economy during this health crisis. Along with lowering rates, the government is still trying to carry out a $2 trillion stimulus deal to protect the rapid economic downfalls we have been seeing over the past couple of weeks. This stimulus package is broken down into four parts, as listed:
1. $250 billion for direct payments to individuals and families:
a) For individuals who earn $75,000 or less. Sole proprietorship along with independent contractors are included.
b) Payments of $1,200 will be given to each of these households with an additional $500 per child.
2. $250 billion in unemployment
3. $350 billion in small business loans
4. $500 billion in loans for distressed companies
With both the Stimulus Package and the Federal Reserve rate deduction, the government is introducing new ways to help our country participate in the market with little risk to reboot the economy. Their doing this while also, more importantly, aiding to those who have indirectly and directly been impacted by COVID-19. The main goal we as a society are focusing on during this pandemic is to see a decline in those affected and a decline in number of deaths caused by COVID-19, as well as “flattening the curve.” While health professionals are desperately searching for a cure, the government is also trying to prevent another economic downfall.