Mortgage Confidential: Is Now the Time?
Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.
Q: What are your thoughts on the feds likelihood of dropping the interests rates again. I'd like to buy a home during this period of lower home prices, and relatively low interest rates. Trying to judge the housing market and interest rates to get them at there best levels is tricky. When do you think it will be the best time to jump in to get the most for my money. Thanks in advance, Steve
A: Steve- Fixed mortgage rates anticipate Fed moves and don't react to them. When the Fed makes a cut, mortgage rates view that move as an indicator of the future of the economy. When the Fed slashed the Fed Funds rate over a series of cuts, mortgage lenders saw that the Fed interpreted our economy as in dire, dire straits. Rates moved downward as a result. Wall Street is in general agreement that the next Fed cut will be a less draconian 1/4%.
But there are rumblings of an economy that's recovering. As well, inflationary fears are still being stoked. This is a double whammy for mortgage rates and in a bad way. First, mortgage lenders as well as the rest of Wall Street have already factored in a 1/4 point cut at their next meeting. Combine that with next week's barrage of sensitive economic data, most importantly payroll numbers, wage inflation, and the core price index and it's dicey at best. Finally, if you look back at all the Fed moves, mortgage rates are always higher after the last Fed cut. The trick is figuring out when that last Fed cut might be.
I agree with you, home prices are at relative lows as are interest rates, but the crystal ball simply isn't that clear to accurately predict the future. But a best guess is always in order. And my best guess would be to buy now. If rates go down even further sometime in the future, you can always refinance. But if they start to rise, you made a mistake you'll be paying for every month each time you write the mortgage check. -David
Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.