Playing Interest Rates in Real Estate

I can walk into a car dealership and drive away with a moving asset worth more than $130,000 in less than an hour. However, if I want to buy – or sell – an immovable object that’s always right where you left it, then I have to go through a million hoops.

Home Sale And Home Purchase

Clearly, I’m frustrated with the latest twist in my home sale and purchase saga.

Everything started out pretty good. We listed the house, had a fair number of showings, no real bites, so lowered the price. And we negotiated with one couple, but before we settled on a number, another group jumped in and out-bid them. We came to an agreement and started the option/inspection/negotiation/appraisal process.

It’s been water torture.

Of course, at the same time, I’m going through the same machinations on the other side, where I’m the buyer, although I like to think I’m more agreeable.

As I consider how to get revenge on the inspector, appraiser, and buyer’s agent who’ve all made this transaction so complicated, I can at least take solace in one aspect of the financial circus…

I’m going to end up with a smoking hot interest rate on my new mortgage.

The Mortgage Interest Rates Are Great

When I bought my current house a few years ago, we secured a 4% rate on a 30-year fixed mortgage, which I thought was awesome. Mortgage interest rates climbed from there, making me look much smarter than I am.

But now rates are lower than they’ve been for several years, and mortgages have followed. My latest quote is 3.625% for 30 years, fixed.

Early in my career, I traded bonds, so I’m well versed in agency paper, mortgage-backs, CDO’s, CMO’s, etc. When I see almost 3.5% for residential mortgages, it seems almost impossible. My first home mortgage in the early 1990s was near 8%, and that seemed like a great deal at the time!

But some people just aren’t satisfied. Or at least aren’t sure.

We’re getting more questions about real estate, and more specifically, about the best time to refinance. Is it now, or should people wait as mortgage interest rates creep lower?

The short answer is, no one knows. U.S. interest rates have been higher than the rest of the world for years, and that should continue, but all of them can go lower than they are today, just ask our good friend Lacy Hunt from Hoisington Investment Management. He’s been bullish on bonds for decades.

But if you’re considering buying a home or refinancing, mortgage interest rates is one concern that you should put to bed. If you can finance – or refinance – a home at less than 4%, then it’s definitely a good idea!

Reset the Rate

Don’t confuse this with the wisdom of buying a home in the first place. Harry has railed against real estate for a while. But you might be like me. Yes, I’m selling, and downsizing a bit, but I still like owning, and I’ve got my eyes wide open to the potential consequences. Besides, my wife likes to renovate. It’s sort of a thing with us.

We might see mortgage rates dip lower in the months or years ahead, but it would be very strange for rates to fall too far for one simple reason. Unlike other countries, we commit lenders to 30 years.

In Canada, rates reset every few years, and the new negative rate mortgage in Denmark only lasts ten years. The more frequently rates reset, the lower the rate lenders can offer at the beginning, which is why adjustable rate mortgages carry lower rates at the outset.

So even if interest rates on 30-year U.S. Treasury bonds and other domestic bonds fall below 2% or even to 1.5%, it’s not a sure thing that mortgage rates will follow, certainly not to the same degree.

I’ll eventually get my deal completed, even though I have to fight with various service providers. But at least I’ll be pleased with the rate on my new loan. It will be at a level that my parents could only dream about, and that many people thought impossible just a decade ago. If you’re in the market to buy or refinance, don’t let the opportunity slip away.