In the most recent week, the market has given us good news and bad news. The good news is that mortgage rates have dropped yet again, while the bad news is that it is unclear whether the Fed still intends to reduce rates again this year. Ultimately, lower mortgage rates signal that it is a good time to purchase a home or refinance (less interest means you can afford a larger loan).
The 30-year fixed-rate mortgage (“FRM”) dropped to 3.55%, representing a long trend of reduced FRM rates (the 30-year FRM has only increased 8 times this year). Meanwhile the 15- year FRM dropped to 3.03%. As you may, or may not, know – the mortgage rates closely mirror the 10-year Treasury note. Unfortunately, the 10-year Treasury note and the 2-year Treasury note have inverted, signaling a lack of confidence in the economy (indeed, an inverted yield curve has preceded every recession for the last 50 years).
The Fed has signaled that they view last month’s rate reduction as a “recalibration”, which suggests they may not make more cuts this year as previously expected. Generally speaking, when the Fed reduces rates, there are more home purchases; a rule that has been supported by all relevant data. Unfortunately, the home-supply has remained fairly low (which is good news for sellers, as that drives prices upward), but is bad news for would-be purchasers, who are unable to take advantage of the remarkably low rates available currently. The general tenor is that the U.S. is on the cusp of a recession as a result of a number of factors, including the U.S./ China trade war (which, as of this morning, is escalating not deescalating); this suggests that rates will continue to drop. The downside of this, however, is that reduced consumer confidence offsets the lower mortgage rates (as it almost guarantees that a home will lose value before it stabilizes and gains value in the long run). This leads to the most important advice we can give here at the Chernov Team: if you are looking for a long term investment (Warren Buffet says if you aren’t willing to hold onto an investment for at least 10 years, you shouldn’t be investing anyways), a recession can only help you by dropping the prices of homes you might not have been able to afford otherwise. The fact of the matter is that the housing market is very stable in terms of value (e.g., you might see a 10% loss in the first 2 years, but the price will return to its original value and increase from there over time); if you are making a long term investment, now is the time to buy if you can find the right house.
At the Chernov Team we understand that knowledge is power, and knowledge of how the market will behave in the near future is certainly powerful knowledge. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.