The 2020 pandemic recession was one for the record books. The pace at which it unfolded was breathtaking, as was the speed of the recovery. U.S. GDP growth collapsed by 31.4% (annualized) in 2Q2020 after most economic activity came to a sudden stop near the end of Q1, making it the deepest recession in the U.S. since the Great Depression of the 1930s. Gasoline demand cratered as people stayed home, and oil prices briefly went negative when the world ran out of storage facilities. Global stocks fell from record highs at the fastest rate ever, leaving the S&P 500 down 35% at its lowest point in March. And, tens of millions of Americans were suddenly thrown out of work as the unemployment rate soared from 3.5% to almost 20%* within two months.

The pace of the economic recovery has been just as extraordinary — US GDP rebounded by 33.1% (annualized) in the third quarter of 2020, and 4th quarter GDP should grow by at least 5%. Global stock prices quickly regained all of their losses from Q1 and even began making new highs again within 5-7 months. The housing market has boomed throughout 2020, spurred by low mortgage rates and an exodus from crowded city apartments toward single family homes in the suburbs. After plunging 14.7% in April, total U.S. retail sales completely recovered to their pre-pandemic trajectory by September, exceeding September 2019 levels by 5.4%, due in large part to an unprecedented array of massive government relief programs and aggressive central bank actions.

One lasting legacy of the 2020 recession is record low interest rates. While seen as a scourge to risk-averse income investors, low rates have been a boon for business and consumer borrowers everywhere. Although yields on U.S. Treasuries reached their nadir on August 4, mortgage rates have continued to decline and are now at all-time record lows. Today, borrowers with good credit can refinance their existing mortgages at around 2.875% for a 30-year fixed or 2.25% for a 15-year fixed rate.



Interestingly, mortgage rates are still declining even as inflation expectations have risen to 18-month highs. When adjusted for expected inflation, the real cost of mortgage borrowing has fallen to 40-year lows. (Real mortgage rates were briefly negative in 1975 and again in 1980, but only because inflation rates were so high.) This is especially true for 15-year mortgage rates, which now barely exceed the expected inflation rate over the next several years.

All of this is to say…if you haven’t refinanced your mortgage recently, rate markets are offering you a historic bargain today. With inflation expected to reach 2% soon, the “real” cost of a 30-year mortgage is less than 1% per year, and the “real” cost of a 15-year mortgage is almost zero. The sharp rise in housing prices we’ve experienced in 2020 is an unsurprising result of such favorable borrowing conditions.

*While the official U3 unemployment rate peaked at 14.7% in April, that figure excluded millions of Americans receiving Pandemic Unemployment Insurance, a special program for business owners, independent contractors and self-employed workers.


Disclosure: The opinions expressed herein are those of Vickery Financial Services (“VFS”) and are subject to change without notice. VFS reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. This should not be considered investment advice or an offer to sell any product.  VFS is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about VFS, including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request.