Saving for a mortgage

It’s Just the Facts: March 2020

  1. WHEN THE BEAR BOTTOMS – The S&P 500 has fallen 34% as of Monday 3/23/20 from its all-time closing high set on 2/19/20, the index’s 12th bear market since the end of WWII. The average return for the S&P 500 in the first-year following the bear market low close in the previous 11 bears is +39.2%, more than 3 times the +12.6% average gain in the 2nd year following the bear market low close (source: BTN Research).
  2. VERY SHORT-TERM LOANS – The Fed reopened the “Commercial Paper Funding Facility” (CPFF) on 3/17/20, a tool first used in the 2008 financial crisis. The facility allows the Fed to buy the “commercial paper” of large US companies, i.e., a short-term corporate IOU used to finance a company’s day-to-day operations. On 3/23/20, the CPFF was expanded to allow the Fed to also buy from municipalities.  In both cases, the corporations and municipalities using the CPFF had lost access to private financing at reasonable rates (source: Federal Reserve).
  3. A LOT OF MONEY – The $2.3 trillion stimulus legislation, officially called the “Coronavirus Aid, Relief and Economic Security” Act (CARES), represents government spending equal to 52% of the $4.447 trillion of actual government outlays during all of fiscal year 2019 (source: Treasury Department).
  4. FORGIVEN – $349 billion of the $2.3 trillion stimulus package is for small businesses that have less than 500 employees in the form of loans that will be forgiven if used for payroll and rent (source: CARES).
  5. LEVERAGE – $454 billion of the $2.3 trillion stimulus allows the Fed to make $4.5 trillion of loans to big businesses (500+ workers). The details: Congress has allocated $454 billion to the Treasury Department which will use the money to support loans made by the Fed of 10 times that amount, i.e., $4.5 trillion of loans. The loan guarantees provided by Treasury (on the entire $4.5 trillion of loans) include the requirement that companies receiving a Fed loan cannot pay dividends or buy back its traded shares for 1 year (source: CARES).
  6. NO JOB – First-time jobless claims for the week ending 2/01/20 were 201,000, its lowest level since 11/15/69. Just 7 weeks later, jobless claims for the week ending 3/21/20 were 3.283 million, a US record (source: DOL).
  7. MORE THAN SIX FEET – The NY Stock Exchange began conducting its trading electronically as of Monday 3/23/20, eliminating floor trading for the first time since its founding in 1792. The action taken is temporary as a result of the COVID-19 virus and floor trading is expected to be reinstalled in the future (source: NYSE).
  8. DEBT LOAD – The $1.51 trillion of outstanding student loans in the United States are held by 43 million Americans, equal to an average of $35,100 per individual (source: Federal Reserve Bank of New York).
  9. BIG GAIN, BIG LOSS – The US stock market has lost $12.1 trillion of value during the 2020 bear market, i.e., from the close of trading on 2/19/20 to the close of trading on Friday 3/20/20. The US stock market peaked at $36.1 trillion, having gained $28.5 trillion during the 2009-20 bull market through 2/19/20 (source: Wilshire).
  10. ALMOST INTEREST-FREE CASH – The Federal Reserve implemented its 2nd emergency rate cut this month last Sunday 3/15/20, effectively pushing short-term interest rates to zero. At the latest emergency meeting, the Fed also cut the reserve requirement for thousands of US depository institutions to zero effective Thursday 3/26/20, i.e., permitting easier lending by banks (source: Federal Reserve).
  11. WILL THIS BE ENOUGH? – There are 924,100 hospital beds in the United States (source: 2018 American Hospital Association survey).
  12. NEED LOTS OF THESE FOLKS – The median annual income of physicians in the United States in 2019 was $199,500 (source: Current Population Survey).
  13. BACKING MORTGAGES – Government agencies Fannie Mae and Freddie Mac serve as the financial backstop for $5 trillion of the $10.6 trillion of outstanding mortgage loans nationwide (source: Federal Reserve).
  14. WHEN INTEREST RATES COLLAPSE – Long-dated Treasury bonds produced a gain of +46.4% (total return) on a trailing 1-year basis as of the close of trading last Monday 3/09/20 (source: Barclays).
  15. IMPACT OF INFLATION – To rank in the top 1% of US taxpayers took $80,580 of adjusted gross income (AGI) in 1980. To rank in the top 25% of US taxpayers took $83,682 of AGI in 2017 (source: Internal Revenue Service).
  16. LOWEST EVER – The yield on the 10-year Treasury note dropped a record low of 0.709% as of the close of trading on 3/06/20, making it 9 record yield closes in just the last 2 weeks (source: Treasury Department).
  17. JUST IN CASE – The personal savings rate in the United States was 7.9% in calendar year 2019, the highest rate nationally since 2012. The monthly statistic, tracked since 1959, reached an all-time high of 17.3% in May 1975 and fell to a record low of just 2.2% in July 2005 (source: Commerce Department).
  18. ALL WERE UP – The average single-family home in the USA appreciated in value by +5.1% during calendar year 2019. Idaho (+12.0%) and Utah (+8.1%) experienced the greatest home appreciation, while Connecticut (+1.9%) and Illinois (+2.0%) reported the smallest gains nationwide (source: Federal Housing Finance Agency).
  19. NEW HOMES – The median sales price of a new home was $348,200 in January 2020, the highest nominal value recorded in history. The median sales price of a new home from May 2017 ($345,800) is equal to $364,505 in current-day dollars, the highest value recorded on an inflation-adjusted basis (source: Census Bureau).
  20. ARE YOU AVERAGE? – For every $100 spent on clothing and shoes, the average American household spends $198 at gasoline stations, another $296 at the grocery store (including beer, wine and liquor), and another $299 at restaurants and bars. The results are based upon $530 billion of retail sales nationwide in January 2020 (source: Commerce Department).
  21. GETTNG BETTER – American banks repossessed 143,955 homes in 2019, down 37% from 230,305 homes repossessed in 2018, and down 68% from 449,900 homes repossessed in 2015 (source: ATTOM Data Solutions).

Courtesy of Mortgage Market Guide