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.

Additionally, discussing monetary policy and rates with current homeowners (particularly those considering refinances) will provide insight into their thoughts on future real estate transactions and potential 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 a game of 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 reason, your transaction was just a “one-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 major media lenders claiming “instant loan approvals in 60 seconds,” shopping for 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 promptly 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 bond yields increase, rates increase, and vice versa.

Typically, your buyer’s mortgage rates are “priced: in eighths, such as 3.125%, 3.25%, .375%, etc.

Although most mortgages are packaged as 30-year products, the average mortgage is paid off or refinanced within 10 years; therefore, the 10-year bond serves as an excellent bellwether for measuring interest rate changes.

 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

Generally speaking, bad economic news tends to bring lower mortgage rates, while good economic news tends to raise 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 increases, interest rates tend to decrease.

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, citizens of the United Kingdom and Northern Ireland voted to leave the European Union.

Shortly after, the British pound and the Euro plummeted for the next weeks and months because currency traders and bond investors feared chaos (they were right).

The American dollar surged – interest rates plummeted as money flowed from the UK and 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

The Federal Reserve Controls the Money Supply

When the “Feds” loosen monetary policy, long-term interest rates fall and vice versa.

In Conclusion

This post has been a brief overview of the “MACRO” interest rate market.

My next post: How Interest Rates Get Priced (Micro) to Buyers
will break down how rates are priced explicitly to your clients!