Ask Bankrate: Questions about real estate prices, CD rates and unemployment

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Here is Bankrate’s latest round-up of financial questions from our readers. Visit this page for more information on how to submit your question. Click on a question here to jump straight to it.

Questions:

Q1: What will happen to real estate prices?

Will real estate prices collapse?

— Paula P.

Answered by Jeff Ostrowski, senior mortgage writer: “It’s a logical question, considering that unemployment has spiked, economic activity has plunged and home sales have ground to a halt. The consensus among housing economists is that home prices will take a hit but won’t crash. The most pessimistic outlook I’ve seen comes from a real estate consultant in New Jersey, who told Bloomberg he expects a 12 percent decline in home values in that state, which is one of the epicenters of the epidemic. Most experts I’ve spoken to predict single-digit declines. This reflects the ‘stickiness’ of home prices, and the long process involved in buying and selling a home. Rather than testing the market in a moment of weakness, many sellers simply aren’t selling. And unlike in the Great Recession, when a glut of homes and a flood of bad mortgages caused prices to plunge by 50 percent in a few years, the pre-pandemic property market was characterized by tight supplies and tight credit. An obvious caveat: These forecasts are based on predictions that the U.S. economy will begin to recover later this year.”

Q2: What can you do if you can’t cover tax bill?

I just found out we owe $8K in taxes. This was unexpected. We have lost a third of our income to coronavirus-related event cancellations. How can I pay our taxes and prioritize other monthly bills? There just isn’t enough to go around.

— Eileen H.

Answered by Stephen Kates, CFP: “I am very sorry to hear about this unexpected bill and the impact this virus has had on your business. The good news is that both the government and many businesses are offering flexibility and relief for those people who are being negatively affected. As our collective situation develops, more relief efforts are becoming available for individuals and families.

The IRS has currently moved the deadline to pay for taxes owed for the 2019 tax year to July 15, which could offer a cushion before your tax bill is owed. Additionally, the IRS has loosened some rules on payments and installment programs under their People First Initiative. In the event that you are unable to cover the $8,000 owed by the deadline, I would recommend that you reach out to the IRS to discuss eligibility for installment payments or Offers in Compromise, which allows you to settle with the IRS for less than you owe. More on both payment options can be found on IRS.gov.

In regard to your other monthly bills, the health and safety of your family is paramount.  Expenses such as housing, food and essential medicine should be the priority. Many companies are offering relief, deferment or discounts for individuals and families who are struggling. Reach out to all of your creditors and discuss what options are available to you at this time.

Lastly, as a small business owner, research your eligibility for the loans offered through the Small Business Administration’s Paycheck Protection Program.

Best of luck to you and your family during this difficult time.”

Q3: Where are CD rates headed?

What Is your projection for CD rates in the fall?

— Linda M.

Answer from Greg McBride, CFA, Bankrate chief financial analyst: “Yields on savings instruments, including CDs, are headed in one direction – lower. And worse, they’re likely to stay there for some time. The last time the Fed cut short-term interest rates to near zero, they left them there for seven years and then only gradually started raising rates. That made for some tough years for savers and CD investors as returns were very low, and often below the rate of inflation. While we don’t know how long benchmark interest rates will stay near zero, we can see that the low rate outlook isn’t going away anytime soon.”

Q4: Where are mortgage rates headed?

Will this disease cause interest rates to go lower, stay the same or rise up?

— Karen P.

Do you anticipate the banks lowering refinance rates in the next few months due to the Coronavirus to stimulate people taking equity out of their home or just to lower their mortgage?

— Camille T.

Answer from Greg McBride, CFA, Bankrate chief financial analyst: “Mortgage rates are poised to remain low for the foreseeable future due to the weak economic backdrop. In the short term, we’re likely to see mortgage rates more closely track yields on 10-year Treasury notes due to the Federal Reserve providing liquidity to the mortgage market. The spread between mortgage rates and Treasury yields should narrow somewhat, but will remain at wider than typical levels given that we’re in anything but a typical economic environment. Longer term, the economic fundamentals will determine how low mortgage rates are and how long they stay there. With high unemployment and restrained consumer spending likely to persist for the next couple of years, that should keep a lid on mortgage rates.”

Q5: Self-employed and out of work. Am I eligible for relief?

I work for Chicago public schools as a dental hygienist but as an independent contractor. I will be out of work till the end of summer due to coronavirus. Is there anything I can receive for benefit income? I’ve read that I can’t get unemployment.

— Jsas

Answered by Stephen Kates, CFP: “I am very sorry about your current situation. You are certainly not alone, and self-employed people all over the country are asking the same questions.

In the most recent relief bill, Congress has expanded unemployment benefits to self-employed individuals and independent contractors. The expected benefits will include 39 weeks of federal unemployment. However, as of right now, this has not yet been implemented in Illinois per the press release from the Illinois Department of Employment Security (IDES) on April 7. IDES has requested that independent contractors do not apply at this time due to the deluge of people currently requesting unemployment relief. I recommend following this situation closely so you can apply as soon as benefits become available.

In addition to these future unemployment benefits, the federal government is currently processing one-time payments to adults and families that will begin in April. The plan provides $1,200 for adults and $500 for children under age 17. Americans with a Social Security number who are not considered a dependent of anyone else, who make between $75,000 and $99,000 (or married couples making between $150,000 and $198,000) are eligible for a portion of the payment. The payment amount is reduced by $5 for each $100 in income over $75,000 (or $150,000 for a married couple). The payment per child is not adjusted for income but will only be available to parents with income of $99,000 or less and married couples with income of $198,000 or less.”

Q6: How long until the economy recovers?

What’s your take on this COVID-infused market/economy crash? Is it going to take a decade to recover?

— Vadim G.

Answered by Sarah Foster, U.S. economy reporter: “We know not how long a recession will last — only that it will end at some point. That being said, experts say it’s likely going to take a while for the U.S. economy to get back on track, though it’s impossible to put an exact time frame on it. A vaccine will play a critical role, given that many consumers might not want to leave their homes even after the shelter-in-place orders are lifted, for fear that they could still contract the disease. A slower return to dining out and going to theaters and sports games doesn’t bode well for a quick snapback in consumer spending. Meanwhile, the more than 20 million individuals who’ve filed for unemployment in the past five weeks may still have ties to their former employers, but if those businesses can’t weather these economic storms, there could be fewer left for the jobless to return to.

You can take solace in the fact that policymakers in Congress and at the Federal Reserve are taking swift and aggressive action. Congress has expanded unemployment benefits and paid sick leave, and is giving Americans direct checks of $1,200 (or more) to soothe the financial pain. The Fed has slashed interest rates to zero and created 11 different emergency facilities to make sure that consumers and businesses have access to loans. Experts say those moves are critical to helping the economy recover.

But all of this points to the importance of being cautious with one’s personal finances. Many Americans were living paycheck to paycheck before the coronavirus came along. It’s critically important that you live within your means, save whatever you can for emergencies, and prioritize the necessities over any discretionary spending. This downturn has yet to fully run its course.”

Q7: Retired and living on Social Security, pension. Will I lose my cash cushion?

I leave my investments alone. I’m 69 years old and retired living on Social Security and a small pension. I’m concerned about losing everything in my cushion.

— Kathleen B.

Answered by Stephen Kates, CFP: “Congratulations on your retirement. I hope you have been enjoying it! The fact that you are currently living on Social Security and a pension will insulate you from some of the short-term swings within the market. Guaranteed income proves its worth in uncertain times like this.

Like the crisis in 2008, the drop in asset values may persist a while longer but will eventually stabilize and return to normal as confidence returns. We have already begun to see a rise in the market in recent weeks as the government steps in with relief and more information about the virus’ impact becomes available.

The important consideration for you will be, “What circumstances will lead me to have to sell or withdraw from my investments?” More specifically, “What level of unexpected expense would trigger a withdrawal from my investments?” In a circumstance like this, it is best to understand how and from where you would make those withdrawals. For instance, any cash would be the first option, followed by investments that are held in a taxable brokerage account, and lastly investments in a tax-deferred retirement account.

Ideally, you will be able to ride out this temporary market turmoil without needing to withdraw but if you must, choosing carefully where to withdraw from will minimize the sales from your depressed assets.”

Q8: Will it cost extra to refinance through a mortgage broker?

In today’s market if you wish to refinance a mortgage and have good credit, will it cost additional money if you obtain your loan through a mortgage broker?

— Michael D.

Answered by Stephen Kates, CFP: “When choosing between the two most common options for a refinance — a mortgage banker and a mortgage broker — it is important to consider your own personal needs and preferences. A mortgage broker will be able to help you compare various different lenders and their refinance options, while a banker will only be able to offer you the options his or her bank currently supplies. For borrowers with more complex or specialized situations, a mortgage broker can offer a very important service to cut through the confusion.  However, you will be paying for this service, and the broker’s fee (typically 1 to 2 percent) will be incorporated into your closing costs.

The true value of a mortgage broker comes from their ability to help you navigate the mortgage landscape and help you find the right (and lowest cost) mortgage for your situation. A good broker can potentially pay for themselves if they help find a better mortgage than you might find for yourself.

Ultimately, I recommend exploring both options — a banker and a broker — and getting quotes from each to understand how they will differ in price and process.”