Sometimes you gotta go out on a limb...
I said a month ago I was concerned about inflation and higher rates, and nothing has changed that opinion. After briefly touching the high 4's last week, 30 year fixed rate are back into the 5's this week (still AMAZING!) but the market is jittery, to say the least.
Here's the dilemma:
If the economy deteriorates further, rates will likely fall as investors seek the "safe haven" of mortgage backed securities.
If the economy improves (or gets a massive, artificial injection of stimulus from the federal government), money will fly out of bonds (which dictate interest rates) and into the stock market. If no one is left to buy bonds (because other investments look better), the yield must rise, which means higher interest rates.
So which will it be? Great Depression 2, or the Trillion Dollar Money Bomb?
It seems to me that we are undeniably just a few weeks away from the biggest federal intervention in the US economy in our nation's history. The printing presses are running even now, and once that money (and those jobs) begin flowing out into the economy, there will be a different psychology altogether.
Right now people are scared. They are looking for a bottom, looking for certainty, looking for some guarantee that things are going to get better.
That is the reason why 30-year interest rates are at 5.00%!
When the psychology changes - and it will - our interest rate environment will change as well. And even if rates bounce back up to 6.00% - which they will, sooner or later - your purchasing power will probably never be greater than it is today.
Consider the following scenarios:
$200,000 loan at 5.00% = $1,074 per month
$180,000 loan at 6.00% = $1,079 per month
If (when) rates go up 1.00%, you have just lost 10% of your purchase power.
A $400,000 loan today at 5.00% carries the same payment as a $360,000 loan at 6.00%. Do you see what happens if you choose to "wait things out"?
Now, there's one segment of the market I won't pitch this idea to, and that's the high end ($500,000 and above)... and that's because I see in the numbers some trends that are very concerning to me right now. If this is your situation, we need to have a separate conversation.
But for the vast majority of buyers, the combination of low prices and low payments should be incredibly compelling.
If I was considering purchasing or refinancing a home right now, and rates mattered to me, I would not wait.
