How the coronavirus outbreak in the U.S. is impacting the local and national housing market

Recent fears over the coronavirus outbreak in the U.S. has now begun to impact the country’s economic climate.

At the end of February, coronavirus concerns sparked the most dramatic stock market sell-off since the 2008 financial crisis, according to NPR. Stocks rallied back on Monday, March 2, on expectations that the Federal Reserve would cut interest rates to boost the economy.

On Tuesday, March 3, the Federal Reserve Federal Open Market Committee (FOMC) announced a reduction of the target range for the federal funds rate by 50 basis points, lowering the target to 1- to- 1.25 percent. While the Fed’s action was expected, the degree and timing were not. Consistent with recent declines for interest rates in the bond market, these declines should push mortgage interest rates closer to a low 3 percent average for the 30-year fixed rate mortgage.

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity,” the Federal Reserve said in a statement. “In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”

This is the first time since 2008 the FOMC enacted a federal funds rate cut outside of the typical meeting schedule. It was adopted unanimously and just two weeks before their scheduled March meeting. The target rate is now the lowest since late 2017, completely unwinding the rate hikes of 2018, National Association of Home Builders Chief Economist Robert Dietz said in a NAHB “Eye on Housing” blog published March 3.

In West Michigan, Rockford-based Sables Homes has been experiencing lower than normal home inventory due to a sudden regional demand in housing.

“Lower interest rates, coupled with a sudden increase in demand, have caused us to see a spike in new housing interest,” said Karin Kay, Sable Homes sales manager. “However, we are closely monitoring any potential supply-chain disruptions on imported materials that could possibly cause setbacks for home buyers.”

On the supply-side, disruptions to international trade are the main concerns, according to Dietz. For residential construction, this means a potential disruption to products like lighting, resilient flooring, plumbing fixtures and household appliances, as well as, materials like particulate filter face masks used for construction purposes. On the demand-side, consumer sentiment and economic activity are expected to decrease, typically followed by a period of rebounding economic growth.

“However, the virus poses supply-side and potential growing demand-side challenges that are not precisely addressed by monetary policy. In the case of widespread virus impacts, fiscal policy will almost certainly have to play a role in the form of financial support for public health infrastructure and perhaps tax policy to support both business and households, a payroll tax cut for example,” Dietz explained. “This economic situation is one that must be addressed through public health and scientific institutions. The rate cut is supportive, both as a signal and as an insurance move for possible economic softening. The economic impacts of the virus could be constrained given mitigation efforts, as well as a reduction in transmission given warmer weather in the spring.”

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