Interest Rates

Although Orion’s brokers are focused on finding programs to fit your borrowers, it is important to pay attention to interest rates. Recent economic data from early May has confirmed the extent of the economic toll of shelter in place and the resulting shutdown of many businesses. So although rates are low, if your client doesn’t have the ability to repay the loan, they don’t matter.

The Bureau of Labor Statistics’ Employment Situation Summary report showed payrolls declined by a record 20.5 million in April and the unemployment rate jumped to 14.7 percent, a post-World War II high. U-6 (part time) unemployment was 22.8 percent. Employment in leisure and hospitality declined by 7.7 million, or roughly 47 percent of workers in that sector of the economy. Given the significant number of lower-wage workers laid off, average hourly earnings increased $1.34 to $30.01 during the month.

On top of that we saw the first large retail companies announce bankruptcies during the first week of May and other larger companies announce significant layoffs. Initial applications for unemployment insurance declined, but remained near historic highs, suggesting that labor data will remain dire in May. Many states began relaxing shelter in place orders in early May and the financial markets have shrugged off much of the historically bad data on hopes that signs of a rebound will surface soon.

The jobs data demonstrates the extraordinary degree of sudden labor market disruption caused by the ongoing COVID-19 outbreak, and echoes what Orion is hearing from our brokers. Prior to this, the largest percentage decline in payroll employment recorded was 4.8% in September 1945 as the US economy was shifting from a wartime to a peacetime industrial footing, and the largest one-month increase to the unemployment rate had been only 1.3 percentage points (in October 1949, near the end of the 1948-1949 recession).

Many unemployed workers are choosing not to search for work and instead are classified as not in the labor force. Hourly wage workers, more prevalent in the service sector, have been hit hardest by the pandemic, while salaried workers appear to have been more insulated in terms of employment. This dynamic may suggest less impact on homebuying demand than some are expecting. The supply of housing, however, is likely to feel more stress in the coming months as residential construction employment fell by 415,000 in April.

What does all this mean for our brokers? To sum it up, Orion’s management believes that we will be in a low interest rate environment for quite some time, arguable for much of 2020 if not beyond. And our brokers, and your clients, will need to make sure that the programs and service fit. And that is what Orion specializes in.

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