MORTGAGE RATE ALERT! Uncertainty Creates Opportunity for Homeownership

At the time of this writing, the world is in the throws of Coronavirus pandemonium as President Trump has cancelled flights with most of Europe, the NBA has suspended the balance of its season, the Dow Jones Industrial Average is off over 8% for the day, and there is not a roll of toilet paper to be found anywhere.  For many in the housing industry, mental images of the housing crash of 2008 immediately spring to mind, conjuring feelings of loss and woe.  However, for the savvy professionals, those feelings are only on the periphery of a canvas more brightly splashed with earily-familiar excitement - and mortgage rates are at the center of the picture.

To put today in perspective, a quick trip back to the housing crash era is in order.  In 2011 the housing market was still in complete disarray with fincially distressed properties being the biggest market driver by far.  Yet, at that same time Guidant Realty helped a deserving client obtain a life-changing transaction.  Victims of the foreclosure era, these clients managed to cash in and reverse their fortune in 2011 by landing a 2700 square foot new-builder home in Rockin at only $330k.  They cashed in on an uncertain environment like any "1%'er" ever could.  It was such a great story that the Sacramento Bee even published an article about it: "Losing a home wasn't the end".  To date, because of all the factors involved it has felt like "the best deal ever" in the company, although that is not to take away from a myriad of other exciting and heartwarming stories.  Those are the situations and solutions that drive true real estate professionals at their core.

In the last week, the company achieved another "best" which is the impetus for this article.  Guidant Realty helped a military service member enter escrow on their first home and lock their 30-year interest rate under 3%!  This time, the housing market is highly competitive and that low rate allowed this person to offer at a high enough bid level to win against several other offers and still have a reasonable house payment.  Should they get transfered out-of-area, the ability to keep the home as a rental investment is a reality with the current rent levels and the resultant affordable mortgage.  These rates should be a clarion call of opportunity for anyone currently with a mortgage or considering a purchase.

What is driving these rates?  It is risk, supply, and government intervention.  Just like the 2008 - 2013 era where the Federal Funds rate was almost zero, we are back in a nationally-stressed financial scenario.  The Fed was already using low rates to sustain one of the longest economic booms in U.S. history and then had to ratchet the rate even further to combat the economic effects of the current Coronavirus pandemic.  Many risk-averse investors are seeking refuge to "ride out the storm" and are moving their funds to bonds and mortgages, considered a current safe-haven after almost a decade of tight underwriting standards.  With a spike in the supply of mortgage funds competing with each other to be put to work financing your house, rates are simply incredible.

So, how does this actually translate to an everyday homeowner or prospective home buyer?  Let's consider a scenario with a $400k loan.  At a historically outstanding 30-year rate of 4%, the principal and interest (P&I) payment would be $1,909.66 per month.  Take that same loan amount and drop it to a 3% rate and you shave over 10% of that housing cost to a monthly P&I payment of $1,686.42 which is excellent news for homeowners that might be able to refinance their existing loans!  However, let's also take that scenario the other direction and talk about the purchasing power of the current buyer who has qualified for a monthly payment of $1,909.  Instead of supporting a loan of $400k, that payment now supports a loan amount of a whopping $453k!  That can translate to purchasing for little more than renting, purchasing an entire new class of home, or the ability to be competitive in a low-housing-supply California market that can be fraught with multiple offers at or above list price.  The bottom line is that savings of 10% or the ability to buy at all are equivalent to the types of returns "the big guys" make - it is the opportunity to cash in like a "1%'er".

So, in practice, how do you take advantage of this opportunity?  If you are a current homeowner considering a refinance, start by reviewing your current rate.  If it is more than .5% higher than the current rate, it is worth considering.  If you can refinance into a 15-year loan, the rate savings and ability to pay your home off faster with a greater savings could be a reality - with as much as another .5% in rate reduction and over $50k - $100k in housing payments over the lifetime of your loan!  Any competent real estate professional, including Guidant Realty, should be able to walk you through finding that best opportunity.  Rates are erratic as lenders are overwhelmed and they also use the rate as a tool to increase or shut off new applications into their pipeline.  As of today, lenders have raised rates back up 1% to stem the tidal wave of applications, but that is an artificial response and those with mortages should be ready as the rate bumps around.  Regardless of where the rate is today, the smart individual will complete their application with a good lender and have it sitting, ready to lock with a directive on file at the lender to do so as soon as the target rate is hit.  Don't get greedy and try and find the lowest rate the market will hit because you do not want to miss the opportunity entirely and rates are changing rapidly.

As for that person that is either considering a purchase or thought the market had run away from them - this is your time!  California regulations continue to highly impact the ability of new housing to come to market, maintaining an insufficient housing supply and keeping home prices on a continual rise.  The likelihood of a mortage meltdown or existence of any housing bubble with all of the stringently underwritten loans of the last decade is extremely thin.  This is your opportunity to not only own your home, but to lock your housing cost, eliminating the ability of rising California rents to impact your lifestyle.  For many renters, if not most, rents 5 years from now will likely be higher than their housing cost if they bought today.  If you are a real-estate investor leveraging with a loan, this is like seeing a market-wide price-drop making it easier to find a property with positive cash flows.  Call us and we will connect you with a professional and trustworthy mortgage consultant and help you initiate your search.

The final question in many minds is "have I already missed the boat?"  While this is a limited window and no crystal ball, our prediction at Guidant Realty is that you have a 60 to 90-day window, with the possibility of lasting throughout the election cycle.  With the expected economic pressures of the Coronavirus, compounded by election-year rhetoric, this media frenzy will be continual, raising real and perceptual risk.  As long as it continues, rates will bounce up and down along these basement levels.  The bottom line is get started now and your odds of success are high.  At Guidant Realty, we strive to be a trusted resource to give you the right guidance for your personal success.  Do not hesitate to reach out to us so that we can help regardless of whether a transaction is involved.  We are here to be a resource in anything real estate related!