Crying Wolf With Mortgage Interest Rates
A favorite one of Aesop's many fables is about a boy who cried wolf one too many times.
I think this fable is well suited to teach those of us in real estate a very important lesson about how we report information and what we advise people to do.
The lesson applies for many facets of our business, and specifically with mortgage interest rates.
A shepherd-boy, who watched a flock of sheep near a village, brought out the villagers three or four times by crying out, "Wolf! Wolf!" and when his neighbors came to help him, laughed at them for their pains. The Wolf, however, did truly come at last. The Shepherd-boy, now really alarmed, shouted in an agony of terror: "Pray, do come and help me; the Wolf is killing the sheep"; but no one paid any heed to his cries, nor rendered any assistance. The Wolf, having no cause of fear, at his leisure lacerated or destroyed the whole flock. - Aesop
Our big, bad wolf in real estate is mortgage interest rates. When rates go up, home affordability drops, and thus both buyers and sellers lose. Buyers purchase less home, and home values stagnate due to the limited pool of buyers.
Mortgage Interest Rates Hit Historical Lows ... Again
Most home buyers are thinking, "so what!" Interest rates have been crazy low for many years now, and the sizzle has worn off. If rates hit zero, I don't think it would create as much fever as the first time we saw them dip below 6% many years ago.
The fact is, over the past 40 years mortgage interest rates have never been lower. You can download the historical mortgage interest rates from the FreddieMac web site, and once you assemble the data, you can create the following real estate graph.
Why Mortgage Interest Rates Will Be Going Higher
There are two reasons why I project mortgage interest rates will go higher. The easiest reason is that because rates have always been higher. The average rate over the past 40 years has been near 9%, so I think that is the level that provides a balance between supply (the supply of money for loans) and demand. Investors providing money to the mortgage markets expect to get a rate of return, and there is no much room at 4% once you figure in traders costs, management fees, and mortgage application fees.
Secondly, we know that the mortgage interest rates are artificially low due to the government stepping in and buying them for the past few years. As a matter of fact, they have been the only buyer. Well, that game will soon be over and it is time for the markets to take back what is rightfully theirs, and market rates will soon apply. Look for the crazy low rates now to last about as long as the crazy high rates did back in the early 1980s.
If I am right, this means that time is up for interest rates below 4% (and maybe 5% too!). That means that though you have been hearing industry voices "crying wolf" about low interest rates for years, don't be caught asleep now that we are nearing the end of a cycle. Refinance your home if you are going to keep it, or get qualified with a mortgage lender if you are going to buy.
The Best Mortgage Interest Rates
With so many web portals showing you "how to shop for rates", you are probably already aware of the fact that they are just loss-leaders to get you to register at their site. The process of qualifying for a loan still takes human interaction, so a simple rate chart without your own personal qualifications is useless for all but about 10% of borrowers.
Work with a mortgage lender that you trust, and have that mortgage lender produce a GFE (Good Faith Estimate) for you based upon your personal situation. This can only be done accurately with a full loan application and credit report, but it is well worth your while to do so if you plan on buying a home or refinancing in the next year.
If you would like to be referred to a great mortgage lender, just drop us a note here and we will help you get the lowest mortgage interest rates for your real estate.