Rate: A Four-Letter Word


Ask any loan officer or any mortgage professional for that matter, what four-letter word causes them to lose sleep, what makes their skin crawl and their blood pressure spike? Rates. Ok, so it’s five letters in the plural form but let’s not get too wrapped up in the minutia. The point is, not an hour in any workday goes by when we are not thinking about rates, talking about rates, or whining about them.

The number one question I am asked by an overwhelming margin is: “When you do think rates will come down?” I will try to answer that question in less than a thousand words, but let’s give it some context first.

February 2022 was the last time I can recall not giving a second thought about mortgage rates. Here I was, cruising along with my best friends 2% and 3%. We were lending money at a breakneck pace. Over eight trillion dollars in 2020 and 2021, that is 12 zeroes and four commas with an eight in front of it. We used to joke that anything at 3% or less was considered free money.

A refi boom that just kept on booming. Happy hours consisted of friends bragging about how low their mortgage pro got their rate. 3% was cool, but there was always the friend that paid a few discount points to get the 2.5% or the ever-elusive and impressive 1.99%. According to a Redfin article published January 12, 2024, more than three-quarters of homeowners (78.7%) have a mortgage rate below 5%. Oh, what I wouldn’t give for 5% right now!

Every good thing must end and that goes for printing free or nearly free money as well. Here we are some two years later, and the first thing I do after shutting off the alarm every morning is open the MBS Live app on my phone and see where the 10-Year T-Bill and MBS (mortgage-backed securities) coupons are trading; the basic ingredients that help determine the day’s price. My wife got me the subscription in March of 2022 so I would stop asking her advice on rates. She worked for two decades at various mortgage companies in the secondary markets department which means she set the margins, locked the rates, and sold the loans on the secondary market for profit.

I surround myself with people who are much smarter than I, and it all started at home. You could say I am just a parrot living in an urban jungle, repeating things I’ve heard along the way. Try some of these on for size at your next cocktail hour and you’ll be sure to impress your friends. “Rates are data dependent”, “Inflation is transitory”, “The Dot Plot”. Just be sure never to refer to the Fed as the Feds. One is responsible for regulating financial markets and the other carries a gun and badge.

Ok, you’ve read this far so now it’s time I give you the answer. No one knows. Literally no one knows for sure when rates will come down, not even the Fed. It’s all data dependent, remember? Sure, the Fed has their dot plot, but it is ever evolving. If they cut rates too soon, inflation could spike. If they wait too long, there goes our soft landing. Anyone who tries to tell you when rates are coming down is selling fools gold. Just ask industry icon Barry Habib about May 10 (last year) and where that got him.

Quoting my friend and MBS Live founder, Matt Graham on predictions: “Predictions are for suckers. A successful prediction is memorable. The person who made it is much more likely to call attention to it while rarely calling attention to bad predictions. Over time, this can lead to a false sense of accuracy. It is extremely difficult, rare, and unlikely to do much better than 50% accuracy.”

Ever since reading that, I have done my best not to make predictions. I can remember in mid-2022 saying that rates should come down in the next 12-18 months and we’ll be able to refinance. Then after 12-18 months passed by and what do you know? Rates didn’t come down and in fact they were worse! I realized that my prediction was just a guess and I ended up on the wrong side of 50%. Silly parrot.

The Fed has changed their tune a bit from raising rates, but inflation is sticky and more persistent than we predicted. Just because they intimate that rates will be cut this year, don’t bank on it. Is it likely? Sure. Am I betting on it? Absolutely not and neither should you.

The truth is everything costs more. The days of free money are long gone. If you can afford the payment, buy the house. The moment you think you are going to outsmart the market and wait until rates come down…think again. Rates coming down likely means an increase in value for real estate. More competition will jump into the buying pool and drive prices up. Or I could be wrong, 50/50.

Check out the MBS Live app mbslive.net for under $40/mo., or if you are looking for free and educational information on rates and commentary, check out mortgagenewsdaily.com.

Randy Vance – President (nmls 1455628) Boss Mortgage, LLC (nmls 2547821) Equal Housing Opportunity. nmlsconsumeraccess.org.



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Randy Vance – President (nmls 1455628) Boss Mortgage, LLC (nmls 2547821) Equal Housing Opportunity. nmlsconsumeraccess.org • bossmortgage.com

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