I talk with people every day about mortgage rates. Clients, potential customer, Realtors, friends, neighbors — everyone has the same questions. Question number one: “What are rates looking like today?” Question number two: “Which way do you think they are headed?”
The first question is a fairly simple one to answer. After looking through a few different investor rate sheets (and shopping them against one another), I find the best rate that I can offer and quote that rate. Most of the times the first question is really, “(Assuming that I have a 720 credit score and 5% to put down and my income is sufficient to carry the monthly payment and my debt obligations) what are rates looking like today?” Answer: easy, a 30 year fixed is at 6.0%. And for all of you compliance gurus, that is an APR of 6.152%, based on a $200,000 loan amount on May 24, 2007, rates subject to change without notice, etc., etc.
The second question is a little bit tougher to answer. And here is why . . .
Simply, no one really knows where rates are headed. It’s kind of like the weather — we can watch certain indicators, predict some things that will affect it, and make a strong, educated guess. But at the end of the day, it is intelligent, well-informed guessing at best.
I subscribe to a service (with a healthy yearly fee of course) that gives me real-time market positions in the mortgage backed securities market. This is the same market that lenders watch in order to determine rate-sheet pricing for the day. This service also offers daily commentary on the market, what to expect in economic news for the week, and their bias towards the market’s direction. This service allows me to advise clients what to do and when to do it (locking in and protecting their rate versus floating), and it gives me a pretty accurate barometer of which way things are headed.
In the chart above (short-version), each candlestick represents one trading-day. Green (up) is good and red (down) is bad. When the chart goes UP, mortgage rates go DOWN. When the chart goes DOWN, mortgage rates go UP. The different color lines represent monthly averages and act as fence posts for trading ranges for the market.
But even with this tool (which sits open on it’s own monitor next to my desk, sends me text messages to my phone every hour with updates, and calls my cell phone and office phone in the event of a drastic market turn around), it can still be a delicate situation. Ninety percent of the time, potential borrowers have been recommended to me by past clients, realtor partners, friends or family. In these situations, where people know me and know my reputation, my advice is often well received and usually taken. In other situations, my being overly sensitive to the mortgage bond market can have me sounding like a car salesman. Here is what I might say, “Well, Mrs. Smith, the mortgage backed-securities market has really lost ground in the last few days and is actually doing so poorly today that investors are likely to change their rate sheets before the end of the day and rates are likely to go up an 0.125%. My guess is that rates tomorrow will be worse than today’s, and my recommendation is that we start the application and lock-in your rate as soon as possible.” Unfortunately, what they sometimes hear is this, (slick-sales-voice) “Well, ma’m, today’s rate is 6.0%, but I’m not sure that this deal is going to around tomorrow. You probably want to go ahead and get started today before it’s too late. I’d hate for this model (I mean rate) not to be around tomorrow for ya. What can I do to get you into a 30 year fixed rate mortgage today?”
So, when getting mortgage advice, make sure that your hired-help (mortgage consultant) is giving you the best advice possible. If they are guessing at rates by looking at the 10-year Treasury or listening to banter around the water cooler, fire them and look for someone who is going to watch the right indicators. And, hey, if you have lots of free time, read up on it yourself . . . there are people out there who know more about the market than me.
Just be leery of trusting this guy . . . (you’d be surprised how many times I hear this one):
I have a strange feeling (that rates will get better) . . . one I haven’t felt in quite some time.