To entrepreneurs who are canceling CVS and
it is preserved by antiviral surgical masks and then offers them
for many times the list price: we all discussed the matter and nobody likes you. That’s right, it’s actually unanimous. Thanks for bringing America together.
For everyone else, the good news is that the Centers for Disease Control and Prevention do not recommend masks to protect themselves from the spread of the coronavirus strain called Covid-19. Regular hand washing and a flu shot are recommended. The strike will not help with Covid-19, but that virus has so far caused zero deaths in the United States, while the current U.S. flu season, which could extend until April, has already killed 16,000 to 41,000 people.
Investors are baffled by the new virus in the same way. This year until February 19, the
S&P 500 index
it had risen by about 5%, but has since returned to signs that Covid-19 could become a pandemic. “I’m not an epidemiologist,” people on Wall Street continue, before predicting exactly what actions they will do from here. As a certified econoblatherologist, I can confirm that they don’t really know.
Consider channeling fear into something productive: a refinanced mortgage for homeowners who meet some basic criteria. It’s a much better idea than drastically changing your stock allocation, assuming you already have a good one.
Stocks are not wet enough to excite bargain hunters. The S&P 500 is trading at 18 times the anticipated earnings forecast for this year, or 19 times the earnings I expect, based on how far distant forecasts tend to fall as the reference time approaches. And there is a precedent for stocks to drop further on viral outbreaks. In early 2003, severe acute respiratory syndrome, or SARS, dropped the S&P 500 by 14% in less than two months.
At the same time, there are few reasons to escape from actions. Regardless of whether the Federal Reserve cuts interest rates to stimulate the economy, the bond market has already done so. The 10-year Treasury yield recently dropped to 1.33%, 0.59 percentage points lower than where it started the year and close to the all-time low. In 2003, during the SARS sell-off, investors were able to purchase a 10-year Treasury with a yield of between 3.5% and 4%. Alternatives to stocks are not nearly as attractive now.
Mortgage rates are a call to action, however.
publishes rates every Thursday based on a survey conducted Monday through Wednesday. Last week it found that the 30-year fixed rate was 3.49%, down 0.86 percentage points from the previous year and that the fifteenth year was 2.99%, down 0.79 points. These rates assume that borrowers pay starting points of 0.7 and 0.8 respectively, but mortgage prices can vary widely within the survey, so borrowers who buy carefully can find rates equally low without points.
Mortgage rates track Treasury yields, which have also fallen since the end of last week, so the next number of Freddie Mac numbers could be even lower. The historical lows in his surveys are 3.31% over 30 years at the end of 2012 and 2.56% over 15 years in mid 2013.
I asked Eric Hagen, an analyst at Keefe, Bruyette & Woods who covers the mortgage sector, what could happen from here. One possibility is that a series of refinancing applications could create a logjam with banks and delay the next downward step for mortgage rates. Mortgage applications have recently increased 165% from a year ago, according to the Mortgage Bankers Association. But Hagen thinks it’s a great time to refinance, so nice, in fact, that he did it himself last week.
A rule of thumb is that mortgage holders who can save at least one percentage point on a refinance should consider it, but Len Kiefer, deputy chief economist at Freddie Mac, says that those with larger mortgages who will stay in their homes for many years will derive benefit more.
Don’t try to guess if rates will drop even lower from here. Kiefer points to a graph showing how economists have struggled to accurately predict interest rates in the past.
I am not an epidemiologist, or even a pirate of a surgical mask, but I would say that the right time to block a low rate on a home loan is now.
Write to Jack Hough at email@example.com