As we continue to receive what feels like hourly news updates on COVID-19 and the overarching affects it is having on our daily lives, it is getting harder and harder not to feel the pressure to “do something” in terms of our financial situation. There is a helplessness in practicing social distancing as the market volatility continues and concerns about the economy abound.
On Monday, the Federal Reserve dropped interest rates to nearly zero, and even before that, mortgage companies were seeing a flood of applications like they hadn’t experienced since 2008. In the first week of March, refinance applications grew by over 79% as everyone rushed to take advantage of the lower rates. While low interest rates are enticing and everyone would like to have a lower mortgage payment, it is important not to overreact, and block out some of the noise. Knowing what goes into the refinancing process and the costs associated with doing so is crucial to making an informed decision, and that becomes nearly impossible when your decision is rushed.
In addition to refinancing, many are hearing the message that there isn’t a better time to buy a house than right now. The earlier discussed low interest rates mixed the idea that every day the real estate market is shifting towards a “buyers market,” has some first time home buyers seeing this as their opportunity. The fear of missing out on this opportunity could lead some to overextending themselves or dipping into their emergency funds. We want to caution against this – whether it is to buy that first house, or to take advantage of the volatile market. Yes, the market is down, and yes, we believe that it will rebound like it always has (although we have no idea of when that is going to be) so the logical choice to some is to invest as much as you can now while prices are low. This might be the right decision if your emergency fund is above your targeted levels and you’re in a job that is unaffected by this downturn, but for the overarching majority of people the main priority is to not overextend your finances right now until more is known about the lasting ramifications.
The choices we make to not act are in fact an action themselves. For those of us who are fortunate enough to be able to participate in social distancing, although it may feel like we’re doing nothing by staying at home, that is exactly the best course of action right now. The need to act quickly in order to not miss out should be treated as a red flag. A thoughtful pause can go a long way. As always, if any questions arise during this time please continue to reach out to your Financial Mentors or myself at Scott.Bennett@3rddecade.org.