It’s both amusing and frustrating to continue to see history repeat itself in that purported “experts” (who are often really acting out of pure self-interest) dole out advice which is both devoid of sound logic and rationale, but even worse, does not come to fruition. Because I refinanced last year and I’m constantly mulling over a future move, I’ve stayed in tune with what the “experts” have been predicting and what the actual mortgage rate moves have been over the years. Invariably, the “experts” are wrong. Time after time, they’ve been calling for an increase in mortgage rates for this reason or that and extolling Americans to “buy now” or “refinance now” before rates spike up since they just can’t go any lower.
Act Now Before Rates Spike?
Much like those late-night infomercials enticing consumers to act now and call “within the next 30 minutes” or “while supplies last” even though it’s a recorded commercial that replays every day, one can’t help but notice the calls coming out of the Mortgage Bankers Association with constant predictions of strong housing numbers, new home sales and other rosy projections which obviously have not come to fruition. Next, when I get a quote from a mortgage professional or you read a column by someone in industry, it’s often highlighting how now’s the time to lock in a new rate since they can only go up from here. Well, this story’s getting old and in fact, rates have actually gone DOWN since many of these cries for action were initiated.
Some of the arguments imploring you to act now have been the following:
Fed Will Raise Rates Soon?:
- “Expert’s” Rationale – With all the money the government printed via stimulus, bailouts, unemployment checks for 2 years and counting, and a continuously declining dollar, inflation fears will soon force the Fed to raise rates, bringing mortgage rates up as well.
- What Actually Happened – The complete opposite happened. There’s no concern over inflation at this point; in fact, deflation is the more likely scenario. With unemployment likely to stay above 9% for years even WITH endless stimulus spending, there’s no way the Fed could justify a tightening. The dollar has actually rallied as the Euro imploded and as always, the US Dollar was viewed as the sole safe haven currency. Treasuries sit at historic lows and mortgage rates have followed. You’re better off with a mortgage rate now than when the inflation calls were en vogue in early 2009.
End of the New Home-Buyer Tax Credit
- “Expert’s” Rationale – Act immediately to capture that tax credit and low rates before they both disappear.
- What Actually Happened – In what is one of my personal favorite experiments we’ve seen the Obama administration try and fail, the government basically gave away $6,500 to $8,000 to people who were pretty much going to buy a home anyway, but this just got them off their butt to do so, then it extended the program, and now they’re looking to further loosen the requirements to get a few extra handouts through the gate. The hilarity of the situation is that once the April 30 deadline passed, home sellers simply dropped their asking price to reflect the exit of this government subsidy from the market – in effect, proving that during the period of the tax credit, home prices were INFLATED by a commensurate amount and we, the taxpayers, paid for the premium – again, to sell houses to people who would have bought them anyway. But that aside, while the experts recommended jumping on a new home purchase during that period, what we actually saw was asking prices drop and rates drop even lower than they were in March or April, so in effect, you were better off in doing the exact OPPOSITE of what the experts recommended when looking at financial impact over the life of a loan.
Rates are Low – But they Could Go Lower
I’m not making predictions. But I am calling out the “experts” that are. They are just as clueless as the rest of us. What is their past track record? Did they predict a year ago that the 30 year mortgage rate would be as low as it is now? Invariably, the answer is no. So, my advice is to act on your own timeline and proceed as if there is no bias in either direction. If you need more time to save up for a home, wait. If you’re ready to buy in 3 months – do it in 3 months, not this month. Rates are just as likely to be lower, the same, or higher when you’re ready.