Finance December 9, 2020

You Can’t Outsmart The Market

Are you getting ready to refinance your mortgage, but are waiting for rates to fall just one more time? If you are, you aren’t the only one. Many consumers begin following the market news and do tons of research trying to determine exactly the perfect time to lock in their lower interest rates. The truth though is no matter who you ask, nobody really knows what the rates are going to do. Even the “experts” that garner millions of television, radio and web viewers get it wrong. There are simply too many moving parts in the mortgage rate equation for anyone to be able to accurately predict this.

Conventional mortgages, both fixed and adjustable, are tied to specific indices. A traditional 30-year fixed rate might be tied to the Fannie Mae 30-yr 3.0 mortgage bond. Freddie has its own bond as well. Adjustable rates can follow the Constant Maturity Treasury index or others. When investors, both individual and institutional, decide where to allocate their funds, they do so by evaluating current economic data, and then try to predict the future.

Mortgage bonds, like any bond, provides the investor with a fixed rate of return. Stocks, on the other hand, do not. Stock prices, in general, take a nod to recent and current economic data. When investors are bullish on the economy, more money will flow into stocks and out of bonds. Conversely, when investors think the economy is headed for a slowdown, the opposite can happen. Money leaves stocks and goes into bonds. Bonds won’t yield very much, but that’s not the attraction. The attraction of a bond is safety, not hitting the jackpot on an investment bet.

So if you are sitting on the fence, waiting for that one last rate drop, it doesn’t happen overnight. Rates don’t typically drop after a single negative economic report. That generally happens after a series of negative reports.

On the flip side of the coin, after rates have been low, or even held steady for a while, it doesn’t take much for rates to rebound. And when they do rebound, the change in available rates occurs much faster compared to falling lower.

This all means that if you’re waiting on rates to fall just a little bit more, you run the risk of the opposite happening; and when it does, rates could move higher and never look back. So if you’ve got an attractive rate now and it makes sense to refinance, or you’ve got an accepted offer on a home and are trying to time the markets, take what you have. In general, the chances of rates moving up is higher compared to rates moving lower. It’s just not worth trying to outsmart the markets.