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Economic Relief Measures Underway

March 25, 2020

 

Overview: The coronavirus and efforts to offset its negative economic effects continued to dominate the attention of investors this week. Daily volatility remained at extraordinarily high levels, and mortgage rates ended lower.

For mortgage rates, the biggest news of the past week came from the Federal Reserve (Fed). On Monday, the Fed pledged to purchase bonds “in the amounts needed” to support the economy and the smooth operation of financial markets. In essence, this means that there is no limit to how many bonds they may buy. Since mortgage-backed securities (MBS) were one of the types of bonds listed, this helped push mortgage rates lower.

 

The government is also taking action this week with a massive $2 trillion fiscal stimulus relief bill, which the White House and Senate agreed upon Wednesday morning. The stock market rallied on the news, particularly the sectors that have been hardest hit in recent weeks, while the reaction in bonds markets was much smaller. If the Senate passes the bill, it will provide some financial relief to individuals and businesses during this period of slowing economic activity.

 

The housing market had been performing very well early in the year. The latest data showed that sales of existing homes increased more than expected in February, reaching the highest level since 2007. National median home prices were up 8% from a year ago, but inventory levels were down 10%. Of course, the pandemic is expected to have a large impact on housing activity in coming months.

 

Week Ahead

Looking ahead, investors will be watching for additional stimulus measures from global governments and central banks to counteract the impact of the coronavirus. The core Personal Consumption Expenditures (PCE) Price Index will be released on Friday, and the next Employment Report comes out on April 3. Upcoming data releases will begin to reflect the negative economic effects of the pandemic.

 

Existing Home Sales (millions)

 

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