Should you Wait for the Federal Reserve to Lower Rates before Buying a Home? (9:52)
Trying to time a home purchase around interest rate changes is risky—and could even backfire.
Broadcast Retirement Network’s Jeffrey Snyder discusses whether homebuyers should continue to wait for lower interest rates with Freedmont Mortgages’ Carl Delmont.
Jeffrey Snyder, Broadcast Retirement Network
This morning on BRN, should you wait for the Federal Reserve to cut interest rates before buying a new home and getting a mortgage? Joining me now to discuss this, Carl Delmont is with Freedmont Mortgage. Carl, so great to see you.
Thanks so much for joining us this morning.
Carl Delmont, Freedmont Mortgage
Thank you. Appreciate you as well.
Jeffrey Snyder, Broadcast Retirement Network
Well, thank you, sir. OK, so we’ve got a Fed meeting coming up, and I know we’re going to talk mortgages and mortgage rates. And so it begs the question, should I wait to take out a mortgage until after the Fed meeting?
Carl Delmont, Freedmont Mortgage
Yeah, no, it’s a great question because I think right now a lot of the consumers hear the Fed’s going to cut rates on September 18th at the next meeting. And look, I don’t gamble, but if I were, I would bet on the same thing. But the bond market, which sort of dictates mortgages, you know, it’s ahead of the Fed.
So mortgage rates will drop well before the Fed announcement coming. So if you look back to, say, November of 23, rates dropped, right? But the Fed didn’t do anything yet, but everyone thought the Fed was going to cut in January and that didn’t happen.
And then all of a sudden rates shot back up again. But here’s the danger of waiting. And look, look at it this way.
If the Fed comes out and does cut, but has some verbiage where they say, you know what, we’re still a little concerned about the jobs numbers and we’re still thinking about this. So we’re going to have a more hesitant policy going forward. Whatever that is, if that’s not what the markets anticipate, then rates go up.
And here’s what people need to realize. If today’s rate is acceptable, you can live with everything, it makes sense. And you’re wrong.
Rates go down an eighth. Okay, yeah, you lost a little bit of money, maybe 20 bucks a month on the average mortgage. But what if rates go up a quarter point or a half a point or three eighths a point, whatever it could be?
Now you’re spending $70 a month more. So if you look at what’s going on out there, there’s an old saying on Wall Street, which I’m sure you’re well aware of is, you know, don’t fight the Fed. And I think that’s one of the things that people need to understand.
When the Fed does cut, it’s going to affect the federal funds rate, which affects prime, which means your home equity, credit cards, anything times a prime, but to fix mortgage world, it’s already ahead of the game.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. Really, really good point. And I like how you frame that because there’s a difference between investing and gambling and gamblers try to time the market or they try to win, win the game.
And they try to get lucky. You don’t want to get lucky when buying a house. Carl, when it comes to finding the house, if you wait, you may lose the house that you really like because no, no seller is going to say, OK, I’m going to wait to the 18th of September.
Right. I mean, no seller is going to do that. They could even if you have an all cash deal.
So you could be taking yourself not only out of a good situation with a mortgage and a good mortgage rate, but also getting the house that you really want.
Carl Delmont, Freedmont Mortgage
Yeah, true. And then if rates, let’s say the Fed says, hey, wow, we missed a boat. We we’ve got to start cutting even more and rates improve.
All right. What does that mean? More people buying and competing, meaning home prices are going up.
So even if the rate goes down a little bit, you’re paying more for the house. And did you really save anything? But again, it really comes down to when buying a house.
And I’ve said this ad nauseum for 30 something years. When you are ready, when you’re emotionally and financially ready, that’s the time to buy a house. But there’s also another saying, marry the house, date the rate.
And what does that mean? If you find a house you like, buy it. And if rates improve, you can always refinance.
So that’s pretty sage advice there as well.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, I think so. I mean, and we don’t mind you. Look, I repeat things all the time.
And I think if it’s prescient and important, it’s a it’s a it’s a tried and true piece of opinion. So I, you know, I encourage you to continue, at least on our show. But I know you do.
You have your own show on the on the radio show. Continue to do it there. You know, ultimately, though, how do you see the home market kind of fleshing out?
I mean, we’ve we’ve talked about increased mortgage rates, you know, homebuilders maybe not building as many homes. So there’s not a glut of homes available. How do you think things kind of shape out for the rest of the year, even with the Fed cutting rates?
You know, will we see more homes potentially being sold? Less homes? Are we going to see the price of homes go up because people are going to be be looking for homes?
Carl Delmont, Freedmont Mortgage
Yeah, I mean, it’s a great question. And, you know, again, no crystal ball here. Just my opinion.
Jeffrey Snyder, Broadcast Retirement Network
Just opinions.
Carl Delmont, Freedmont Mortgage
I believe that, you know, inventory has improved, but not quite at the pace we need. But we’re starting to see some improvements there. But if rates do improve, if demand does increase, that’s going to pretty much nullify any type of inventory gains.
And it will create the same thing we have now. It’s econ 101, right? Supply and demand.
If more people want something and there’s fewer of that item, the only solution is that that price of the item goes up because of scarcity. And I believe that’s, you know, we could go back and see that again. The issue is going to be, and we’ve been saying this for a while, ever since we had, you know, 2020 where rates were at all time lows, the Fed was subsidizing rates, right?
They were buying boatloads of mortgage-backed securities and other things to keep rates attractive. And what we would always tell people is, look, you’re getting a gift rate now because rates should be almost double what they are. And at some point they will.
It’s going to, there’s going to be a reckoning. And we sort of had that reckoning a little bit more to the upside than most had anticipated. But you know, again, are wages keeping up?
Not really. So if home prices continue to go up, the only way people can afford is if rates come down or salaries increase. And we’re not really seeing either of those as going up exponentially, right?
So the bottom line, I think, is if people are looking to buy, again, if you’re emotionally financially ready, it makes sense. You know, there is the adage that if you’re going to pay a portion of your budget towards shelter, be it an apartment that you rent or a house that you own, you know, at least part of that money is going towards your equity. And if you think of mortgage debt, which is installment debt versus say revolving like a credit card, every time you pay a credit card, it’s just principal and interest, right?
But anything you pay on it, it’s not really going to bring anything down. And there’s no term associated, whereas with, and there’s no appreciation. But with a house, if you’re making those payments, every payment has a little bit of principal in the early years.
You can pay extra if you want, and you also get the benefit of appreciation. So by your payments, you’re actually making the balance go down, appreciation is making your house go up. So, I mean, you have this spread here where now by doing nothing else than paying a fixed amount of money monthly, you should get equity that grows.
Now, there’s, we saw back in what, 2008, 2009, people being underwater, that was a bit of an anomaly. I don’t know that’s going to happen again. And we are starting to see pockets of the country where some home prices are coming down, sellers are lowering their price, sellers are being a little more flexible.
So I think we’re coming back to more of a normalization in the housing market. But unexpected lower rates could change that.
Jeffrey Snyder, Broadcast Retirement Network
Last question. Any tips or tricks, can’t talk this morning, on getting that mortgage? So if you are financially and emotionally ready to buy and you want to seek a, get a mortgage, any tips given this environment that we’re in?
Carl Delmont, Freedmont Mortgage
Yeah. I mean, look, you want to, especially now with this data breach, you know, a lot of people are freezing their credit. Understand you can’t apply for a mortgage if your credit is frozen.
You have to thaw it. So make sure you remember that. Remember your pin number too.
But, you know, a pre-approval, like a pre-qualification is what you call a lender and you say, hey, my name’s Joe. I make $50,000 a year and I want to buy this house that costs $200, but all they’re going to do is pull your credit, take a look at what $50,000 a year does versus the bills they see and give you that pre-qualification. A pre-approval means you went to the lender, their underwriter actually reviewed the file.
They had pay stubs, W-2s, maybe even tax returns, and they have everything ready to go. The only reason that loan won’t close is if you quit your job, something pops up that you didn’t share or something happens to the house, like, you know, needs a new roof and the seller’s like, I’m not paying for it. And you’re like, okay, well neither am I, let’s go to the next house.
So a pre-approval is the best way. And what you want to do is every time you make an offer in a house, you have to update it to that particular property. But that’s the best way.
And I would also say too, and this is maybe a little bit selfless, but you want to look for a local lender. There’s a lot of people that will find that they shop on the internet and what happens is they get quoted really low rates, but they pay an application fee to get it. But then when they submit that pre-approval offer and a pre-qualification offer, the agent for the seller’s like, no, no, I’ve had a bad experience, so I don’t know who these people are.
So sometimes local, you might get your offer accepted and maybe you’re not making as big an offer as someone else. But definitely get the pre-approval and make sure you understand everything goes along with it. And the other thing a lot of people don’t understand nowadays, especially with this new realtor rules, the realtor say, hey, you got a buyer’s agent, you got to sign a contract with me now.
They’ll call their friends or parents, their parents say, oh no, I just bought a house two years ago. That’s wrong. Something’s wrong with that.
The market changes, the rules are changing. So make sure that if your dad says I bought a house two years ago, good for him and good for you going to your dad. But make sure you talk to the experts out there, realtors, loan officers, ever, because they’re up to date with what the new rules and laws are and not everyone’s trying to take advantage of you.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, really good point. Carl, we’re going to have to leave it there. So great to see you.
Thanks so much for joining us. And we look forward to having you back again fairly soon. Sounds good.
I appreciate it. And don’t forget to subscribe to our daily newsletter, The Morning Pulse, for all the news in one place. Until tomorrow, I’m Jeff Snyder.
Stay safe, keep on saving. And don’t forget, roll with the changes.