Waiting, Waiting, Waiting
I recently read a story about a woman who was preapproved for a mortgage before rates started to jump but she waited too long and the rates had moved to a point where she could no longer qualify. Fortunately, she had the assets to be able to put more down therefore borrowing less. Doing so pushed her debt ratios down to a level to where she ultimately moved her purchase past the finish line.
However, many may not have the resources to find more money. After all, saving up for a downpayment is one thing but when you factor in additional costs associated with the closing, it puts the home out of reach. While she was in limbo, she stated that she was just going to wait until rates went back down. I told her I didn’t want her to be disappointed, but I really didn’t think that rates were moving back down to the level where she could qualify once again. And I still think that.
In her instance, rates had moved up by a half percentage point. Actually a tad more than that. Both the Fed and the markets moved rates upward. Remember, it can take just a sneeze and rates will jump. But on the other hand, it takes quite a bit for them to come back down. Fast up, slow down.
Here’s the thing. Mortgage rates typically anticipate any Fed action. By the time the Fed does move, one way or the other, mortgage markets have moved ahead of time. So, are you doing the same? Perhaps you know someone who is also waiting for rates to move downward?
The economy will need to show some verified signs of a slowdown. Not just over a one month time frame but actually more than that. Markets like to see trends, not perhaps a one-time anomaly. That means at least two months, with three more likely. If you’re waiting, waiting and waiting, you’d have to wait at least three months in most cases for rates to begin to fall.
Then, markets will wait yet again to see if the rate reduction had any impact. Again, that’s another two or three months. And when or if rates do fall, they probably won’t fall by more than 0.25%. When the Fed waives its heavy hand, it does so in 0.25% increments. In most cases anyway. On rare occasions, the Fed may in fact drop rates by 0.50% but that doesn’t happen very often. The Fed doesn’t like to get caught with its financial pants down.
If this situation hits close to home, be ready for the long haul. Or find some more down payment money, find a smaller home or other tactic. But if someone is waiting for rates to drop another one-half percentage point or more, that person might be in for a long wait.