Tag: thefed

Rates Don’t Have to be a Gamble

Since the Fed’s announcement last week and the ongoing . . . uneasiness surrounding a trade war with China, the markets have been a little less than settled.  And that’s been a very good thing for interest rates.  In real estate and mortgage circles, I’m not hearing any complaining.

What we do continue to hear, though, are borrowers thinking out loud about how much lower the rates can go and whether they should act now or wait.  Speaking for myself, I’m not a wizard of wall street, and I don’t have a crystal ball to tell me exactly where rates will be at 10:37 a.m. on September 2, 2019, so I will admit that my GUESS about what rates will or won’t do is just a guess.  Now, I’ve been doing this long enough and surround myself with some VERY SMART people so I have experience and resources to have a fairly good idea where things are headed.

With that said, let’s get back to all the financial armchair quarterbacks who are stuck in analysis paralysis.  I’m going to share one thought with you that one of those very smart people I know has shared with many.  It’s not meant to give you any additional insight into what the market will or won’t do – it’s simply intended to act as a loving but resolute slap in the face and snap you out of your self-induced trance.  Here it is:

“Don’t fight for an extra eighth down in rate unless you’re willing to lose a quarter.”

We will always seek out the very best rate for you and your borrowers for obvious reasons, and we’ll lock it when it’s to your advantage.  We’ve done this a couple of times before.  In many cases, we have a “float down” option so that even after the rate is locked, if market conditions change favorably between the lock and when we close, we can float the rate down to take advantage of the favorable change.  On the flip side, if you’re trying to outguess the market and want us to hold off because you THINK it’ll drop from 3.875 to 3.75, that may not end the way you hope it will – the market, like a three-year-old, is unpredictable.  Let us do a little babysitting for you so you can enjoy the experience of buying a home!

Getting the Cut Right

This is going to be a short one, I assure you.  This is probably stuff you already know, but I think now’s a good time to bring it back up and have a bit of a refresher course.  Are you ready?

When people talk about The Fed and “rates”, they’re not talking about home mortgage interest rates . . . at all.  They’re talking about the “Overnight Lending Rate” – this is the rate at which banks borrow money from each other – and it’s a short-term rate.  Mortgage rates, by their very nature, are long-term rates.  Are you still with me?

The Fed cuts rates to fuel economic growth and/or allow inflation to rise.  While that’s great for our 401Ks and the like, those things are bad for long-term rates like the ones we seek for home loans.  Conversely, when we have trade tensions and other global concerns, people get nervous so economic growth stalls and inflation stagnates.

In coming days, if The Fed chooses to HELP the stock market by cutting rates, we’ll have to wait and see what the market’s reaction does to the long-term rates.  Put simply: anything that helps stocks is usually not a help for long-term mortgage rates.

Have I oversimplified it?  Of course I have!  However, when you hear two guys at the barbershop (if such a place even still exists) having a chinwag about what the talking head on TV just said about The Fed raising or cutting rates, you’ll be smarter than 95% of the population and know where mortgage rates are headed.  Don’t let that go to your head, though – it might make it difficult for the barber to give you a proper cut.