Overview

There are only so many real estate (property) questions any buyer has (at a given moment) that keeps them engaged with you.

Being able to speak intelligently about monetary policy and interest rates; will present you as a more well-rounded real estate professional and will keep you and the buyer more fully engaged.

Also, if you can talk monetary policy and rates with current homeowners (refinances), you will gain a window into their mind for future real estate transactions and their referrals.

Many agents are reluctant to “get involved” with buyers or homeowners when it comes to the subject of “choosing a lender.

And with good reason.

When an agent makes a referral, and the MLO becomes mired down with delays and mistakes (lenders fault, borrowers 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 input, its akin to playing commission roulette with your 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 lack of service and chaotic indifference on the MLOs part.

Truthfully, I’m most likely preaching to the choir here?

So, don’t play commission roulette, and when the buyer chooses their lender – be on top of their lender 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 are aware of. 

Let’s Begin!

Despite advertising from the big media lenders with claims of “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 well within 10 years, so the 10-year bond is a great bellwether to measure interest rate change.

 Market Timing

“Rates always Go Up” –  “Much faster than they Go Down.”

Mortgage rates can rise very quickly but are often lowered in a slow, calculated manner to protect lenders from rapid market shifts.

When there’s more demand for mortgages (during the typical spring homebuying season), rates will tend to go up, or if wholesale prices are declining – wholesalers are less likely to “pass on” the lower rates to homebuyers.

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 with it lower mortgage rates, and good economic news forces rates higher.

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, there’s 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. But they happened regardless and the affected 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 country in 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

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.

In my next post How Interest Rates Gets Priced (Micro) to Buyers will break down how rates are specifically priced to your clients!