Wednesday, March 26, 2014

Do Mortgage Rates Matter?

I was scanning through LinkedIn this morning and a chart caught my eye.  It was a 200 year US 30 year Mortgage graph.
Over the years, I have seen some Mortgage Originators who watch rates like you would a stock in your portfolio.  I see blogs about what rates may be doing.  The only thing certain about mortgage rates is they will go up or down and they are a function of other variables.  For the consumer, mortgage rates do not matter in that they are relative to the economy.
When mortgage rates are high inflation is generally high along with home prices, wages, employment etc.  When mortgage rates are low inflation is generally low along with home prices, wages, employment etc.  The most recent recession was caused by an unsustainable product portfolios which required significant monetary policy inputs (QE1, QE2, QE3) to correct which created the artificial lows in mortgage rates we saw in the past year.
The one thing that is always true is markets are rational and always find an equilibrium.
Look at it this way.  Does a boat run differently in low tide vs. high tide?
No it is the same.  Does a higher rate matter if the home you are buying is appreciating 7% a year or your families income is increasing 10% a year due to the great economy?  Rates do not matter in that they are relative to the surrounding economy and a rate lower than the market generally has a catch since mortgage rates are a commodity.  As you require your stock broker to be licensed, be sure your Mortgage Originator is licensed and not just registered.
What is important to consumers is a home provides security for their family, a hedge against inflation, and potential tax benefits while providing an environment to create memories.  As an industry, we should focus on client need today and five years down the road.
Rates are a commodity and are a function of the economy.  The consumer is always getting a relatively good deal any day they lock given they economy is the tide in which their boat floats and their boat is always floating the same way in a high tide vs. a low tide.
Cal Haupt
Chief Executive Officer
Southeast Mortgage of Georgia, Inc.

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