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Tripping over Dollars to Pick Up Pennies

By
Mortgage and Lending with Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 NMLS ID# 158606

Thirty year mortgage rates have been moving higher over the past week and are currently at 5.5%.  Many of you know that over the past month rates moved as low as 5% for 30 year fixed mortgage loans.

After a few days of pricing pressure, Mortgage Bonds are trading near "oversold" conditions, which could make prices ripe for a reversal higher.  If you couple that with the strong underlying support, it gives reason to be optimistic that the rates will mover lower in the next week.  I'm watching very carefully and will be advising my clients to lock if the rates move down to around 5%.  For nearly every home owner, a rate around 5.25% is probably at least .5% lower than their current rates and for loans $250,000 or higher the minimum monthly savings is around $78.  That's nearly $1,000 annually.  What are you waiting for?  

 One thing we are listening to carefully is talk in the trading pits about the return of inflation.  Word is that if Obama's stimulus and rescue packages do indeed work and get the economy headed in the right direction - inflation could gather steam rather quickly.  This is why over the past three days, the Treasury market has been decimated.  Mortgage Bonds - while trading lower - haven't lost even a fraction of the ground that Treasuries have lost, likely due to the Fed's buying of Mortgage Bonds.  This is something worth paying attention to, as a spike in inflation may make it harder for the Fed to drive mortgage rates much lower through their purchase program.

If this economy begins to recover, even the slightest hint of improvement, the mortgage rates will climb to over 6% in a heart beat.  So at this point my position is to take a very conservative stance on the future of lower rates.  I'm going to assume that if we see something around 5% anytime soon that's about as good as it's going to get.

Many of you are still hoping that rates will drop into the 4% range.  It's not likely the Fed will be successful in making that happen.  So get off the fence and make your move.  You'll be more upset if rates go up and you miss what you could have gotten than if you refinanced and the rates went .25% lower.  Don't trip over dollars to pick up pennies.

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Comments (11)

James Wexler
wexzilla.com - Scottsdale, AZ

you are right on , my man, trying to pick a absolute bottom never happens and usually leaves people paying more in the future, not less

Jan 30, 2009 01:14 AM
Larry Story ALC
Total Care Realty - Greensboro, NC
Beneath it all is the Land, Covering all of NC

Very good post and I really like the logic and tag line.

Jan 30, 2009 01:16 AM
Marty Kampmeier
Prudential First Realty - McHenry, IL

Tripping over quarters to pick up the nickels is one of my husbands favorite sayings. You are so right about your post.  Its sort of like playing craps.. 7 out if you wait too long.

Jan 30, 2009 01:18 AM
Alan May
Jameson Sotheby's International Realty - Evanston, IL
Home is where the hearth is.

Well, it sounds as though it was a good idea, that I locked in my refinance at 5%, then, doesn't it?

Jan 30, 2009 01:19 AM
Kirk Mulhearn
Prudential California Realty/Gem Mortgage - Long Beach, CA

Think Stagflation, think Japan, think supply and demand.  I don't think we will see a high inflationary trend until demand picks up, take the commodities markets, demand cratered and so did prices.  However, with the Fed and Treasury printing up a trillion here and a trillion there and not reporting the g3 money supply we have to ask ourselves about the watering down affect on our overall dollars buying power.  Then we have another pressure developing, that is if certain foreign govs dont sell their oil for a min. of $50-80 a barrel, then they are essentially bankrupt and will not be able to sustain purchasing our Tbills.  Then the Fed starts to monetize the debt and for sure you will see both higher interest rates and inflation.  www.longbeachrealestateandloans.com

 

Jan 30, 2009 01:23 AM
Vickie Slade
Colorado Landmark, Realtors - Boulder, CO
Service You Can Trust ~ Someone You Can Depend On

Larry, good advice for all of those tryin to refinance or to lock on a new loan.  Another saying I have always liked is penny-wise and pound-foolish.  Let's hope that Obama's stimulus plan does get the economy going again.

Jan 30, 2009 01:23 AM
Mark Watterson
Salt Lake City, UT
Utah Real Estate

I got my loan 4 years ago @ 5.5% and have never figure 5% was worth the costs.  Now 4% that's at different story...if it ever happens.

Jan 30, 2009 01:24 AM
Brent Johnson
Chase International South Tahoe Realty - South Lake Tahoe, CA

Great post. I will share your thoughts with my clients!

Jan 30, 2009 01:25 AM
Betina Foreman
WJK Realty - Austin, TX
Realtor, C.N.E., with WJK REALTY

Dear Larry,

I have to agree with you. If you get 5% be happy and remember the interest rate has not been this low since the early 70's...

Betina

Jan 30, 2009 03:55 AM
Gwenn Tanvas
NEXA Mortgage LLC an Equal Housing Lender NMLS # 1660690 - Appleton, WI
The Mortgage Gal, 920.267.7891~ SMART - INNOVATIVE

Hi Larry - Great Post! We need to get this information to our local communities. There are so many stuck on 4???? I myself have several fence sitters. Thanks again my friend.

Feb 01, 2009 03:02 AM
Stanton Homes
Stanton Homes - New Home Builder - Raleigh, NC
Design/Build Custom Home Builder in North Carolina

Thank you for an analysis that makes sense.  The news stories talk about 4% here and there, but I just don't see how it's going to happen.  We already hit record low rates, and look how quickly they bounced back up again.  I just hope I get to close on my new home before the rates go higher! 

Feb 02, 2009 10:48 PM