It’s been an amazing couple of years in the mortgage and real estate industry. The last couple of years have been baffling to most of us that analyze the market. 30 year mortgage rates seem to be clinging to these artificially low levels. In this ABC News Article, http://abcnews.go.com/Business/wireStory/average-us-30-year-mortgage-rate-410-pct-25069828 the writer gives statistics from Freddie Mac. showing that at the time this article was written, 8-21-14, we were at a 52 week low! Well guess what? They’re even more improved as I write this blog post.
The industry is crazy and the most recent history will have the average person believing that this will last forever. The problem w/this thought is that rates are artificially low. The Fed has been buying Mortgage Backed Securities (MBS) for quite some time now and they’ve been tapering the amount they purchase now for months but global events like what’s been happening in the Middle East and in Russia have helped keep them low in spite of the tapering. Added to that is that the economy is not improving at the rate that some have predicted and we’re missing our marks slightly as the economic reports are released. Bottom line, rates should be much higher than they are. What’s concerning about this is that borrowers have been spoiled by the rates we’ve seen over the last few years and forget about history.
They forget that this could turn on a dime. In other words, that rates could jump up in a heart beat. A great analogy for this would be the housing market from 2003 – 2007. By about 2004 – 2005 many experts were squawking about how these values cannot be supported. That there was a bubble looming. That property values were becoming dangerously inflated and the prices couldn’t be supported by the average income of homeowners. While all of this was true, we as the people didn’t listen. Then when the “bubble” burst, everyone realized that it was true but it was too late. They had already taken out multiple refinances, paid off debt, bought new cars and boats, took vacations, bought new houses and the list goes on. They blindly believed that this run would continue and then one day the sky fell. Now they’re upside down, payments are going up, and they can’t refinance. Now had they looked at the situation logically they would not have used their equity like a bottomless piggy bank.
So how does this compare to the low rates of today? Values have now seemingly reached equilibrium and we’re on track to see gradual increases going forward so what’s the problem? The problem is that these rates being held down to the lowest levels we’ve ever seen is a result of government intervention and unfortunately war, destruction, and misery around the globe. But it just cannot last. The rates have to go up in order for the economy to function normally. So when does that happen? Most of us thought it would have already but it hasn’t. An interesting concept to discuss is “Buy Low, Sell High”. Which is intelligent. But what it doesn’t mean, is to buy at the lowest and sell at the highest. Why is that? Because we can never know what the lowest rates are until they rise. Then we can look back and say, “oh, the lowest rate of the year was on August 28th, 2014 (just for example). So in theory, holding out for the lowest rates in history will only land you on the upside when rates are climbing.
I’ll sum this up w/a little story, kind of a fable if you will. There’s a dog w/a bone and on his way to bury the bone he sees a lake. As he pounces up to the lake he sees his reflection. Only he doesn’t know its his reflection. He thinks its another dog and what does that other dog have? He’s also got a bone! So the dog whimpers,and dances around and thinks to himself, “I’m gonna get me that bone!” So he waits and waits but the dog in the water is patiently waiting too? Finally the dog after quite some time plunges his head in the lake and tries to bite the bone out of the other dogs mouth. Guess what happened? You got it. He dropped his original bone and of course came up empty handed, or mouthed in this case because there was no other dog. It was merely his reflection. You see, its not that the dog was stupid. He hadn’t learned about reflections yet. So he didn’t have the right knowledge and information to make an intelligent decision but was blinded by the allure of what could be…having two bones to bury. Today we’re victim to the same issue as the dog. All we know or can see is that rates are really low and all we get is misinformation from advertising. Because we don’t have the knowledge of how rates are derived and what drives them, we can’t make an informed decision, just like the dog w/the bone, or without the bone rather. Don’t be caught like the dog in this story. Call me today to do a free mortgage review and find out just how much you can save monthly and over time. Chris Reese, California Mortgage Hero and Certified Mortgage Planner, 916-502-1656. You can also inquire on line at http://www.sacramentohomeloanspecialist.com/forms/refinanceAdvisor.html
30 Year Mortgage Rates Still Hanging Out in the Low 4"s
