Overview
There are only so many real estate (property) questions any buyer has (at a given moment) that keep them engaged with you.
Speaking intelligently about monetary policy and interest rates will make you a more well-rounded real estate professional and keep you and the buyer more fully engaged.
Also, if you can discuss monetary policy and rates with current homeowners (refinances), you will gain a window into their thoughts about future real estate transactions and their referrals.
Many agents are reluctant to “get involved” with buyers or homeowners when it comes to choosing a lender. And with good reason.
When an agent makes a referral and the MLO becomes mired with delays and mistakes (the lender’s fault, the borrower’s fault, or no one’s fault), it can hurt the agent and buyer’s current and future relationship!
On the other hand, when a buyer chooses a lender without an agent’s input, it’s akin to playing commission roulette with one’s bank account.
Take a moment and reflect upon the worst “hair pulling – Xanax popping – wine guzzling” transactions YOU’VE personally ever experienced (while still not collecting a commission check).
I’ll wager it was the buyer’s choice of lender, at the very epicenter of the chaos, that evoked your murderous thoughts and depression-like mood swings.
At the heart of the matter, there was NO Agent –NO MLO relationship before (and during) the transaction.
In other words, (for whatever reasons), your transaction was just a “1 Off” to the MLO. Hence the MLO’s lack of service and chaotic indifference.
So, don’t play commission roulette, and when the buyer chooses their lender, be on top of it like a “commission pit bull.”
Insist they process the buyer’s application and get a “D.U.” loan approval!
Why Pre-Approval Letters are Worthless!
“D.U.” Loan Approvals – Never Lose a Buyer Again
Moving On
I’ve prepared two posts on how to engage with buyers/homeowners.
The posts are based on my 40 years of experience in mortgage lending, and the market forces I’ve (and our industry) has chronicled.
There are exceptions to every rule, but since none of us work for the Feds (neither will any of your buyers/clients), I’ve alluded to the most general trends that most laypeople know.
Let’s Begin!
Despite advertising from the big media lenders claiming “instant loan approvals in 60 seconds,” shopping interest rates is still a daunting task for every homebuyer, and many rely on their agent for advice.
Technology has made the initial approval process faster, but with the new regulations brought on by Dodd-Frank (TRID), closing escrow in a timely manner is more tedious than ever and often extends deadlines, appraisal turn times and COE.
The Macro Market of Interest Rates
There is no free money; all 30-year mortgages are based on the 10-year U.S. Treasury bond.
When the bond yields increase, rates go down and vice versa.
Typically, your buyer’s mortgage rates are “priced: eighths such 3.125%, 3.25%, .375%, etc.
Though most mortgages are packaged as 30-year products, the average mortgage is paid off or refinanced within 10 years, so the 10-year bond is a great bellwether for measuring interest rate change.
Market Timing
“Rates always Go Up” – “Much faster than they Go Down.”
Mortgage rates can rise quickly but are often lowered slowly and calculatedly to protect lenders from rapid market shifts.
When there’s more mortgage demand (during the typical spring home-buying season), rates increase. If wholesale prices decline, wholesalers are less likely to “pass on” the lower rates to homebuyers.
What is the best time to lock a rate and close escrow (refi or purchase)?
The last quarter of a calendar year, when fewer people are looking for/buying homes, and applying for refinancing due to the holiday season activities
Market Conditions / Economic activity
As a rule of thumb, bad economic news brings lower mortgage rates, and good economic news raises rates.
When the U.S. stock market drops, funds flow out of the stock market (short term) and into U.S. Treasury Bonds, driving interest rates down!
Mortgage Rates vs. Unemployment
When unemployment goes up, interest rates tend to go down.
When there’s an “unexpected” surge in unemployment claims, rates will fall more quickly.
When there’s good economic news, more demand for borrowing, and rates trend up!
News/World Events
News events are “wild cards” to the mortgage market.
No one can predict them- but the cards are “baked in” in the deck.
No one could have predicted the events of 9-11 or the Spanish Flu of 1917. However, they happened regardless, affecting the mortgage market and overall economic activity.
Note: If you have a real estate transaction “in process”, when a world “event” happens, your commission check(s) (and career) may hang in the balance.
A more recent news/world (wild card) event example is:
“The Brexit Phenomenon”
On June 23, 2016, United Kingdom and Northern Ireland citizens voted to leave the European Union.
Shortly after, the British pound and Euros plummeted for the next weeks/months because currency traders and bond investors feared chaos (they were right).
The American dollar surged – interest rates plummeted as monies flowed from the UK / Europe, to the safety of the “global currency” – the US dollar.
Why the US Dollar Is the Global Currency
Federal Reserve Board and Monetary Policy