More common sense for buyers

[SD Realtor]

Like I said Rus I have always thought you are a straight shooter and I always respect your opinions. While you and I disagree on what you wrote I don’t view it as an attack or being disrespectful at all. It is what you feel and you presented it a respectable manner.

I believe I wrote at one time, “If we all agreed on everything this forum would suck.”

SD Realtor

[patientrenter]

SD Realtor

I have to disagree with you that you can see where rates are going in the future from the trend in the recent past. Or perhaps I should say that I can’t! If you can, then I suggest you should trade bonds and you could make many, many times your current earnings. (I’m not being sarcastic.)

I suspect you don’t actually advise your clients that rates are more likely to go up before lock-in, or vice versa. I think the consensus view amongst interest rate experts on what anyone can safely and accurately say about future long rates, and hence the lock-in (fixed) rate is that:

1. The best estimate of it is roughly the current rate

2. Rates will go up (or down) by an uncertain amount from now until lock-in

3. The degree of uncertainty increases with time to lock-in
(and for nerds, it’s approximately proportionate to the square root of the time to lock-in, if the time is short enough)

4. The degree of uncertainty varies with the amount of daily volatility in the rate today (and for nerds, it’s directly prportional over short enough times to lock-in)

Here’s a practical example:
Your buyer is trying to decide between two purchases. Home A can be locked in 1 month from now; B 4 months from now. Otherwise, they are equal. Current fixed rates are 6%. The buyer wants to compare the interest rate risk. He decides to look at the cost of home A at 6.5% as a reasonable worst-case, 50bp higher than today’s rate. Then it’s fair to look at home B at 7% [twice as much over today’s rate, because sqrt(4 months/1 month) = 2].

Here’s another:
Same buyer, but now the daily fluctuations in the rate have gone up by 50%, and the buyer is worried his 6.5% one month from now isn’t worst-case any more. How high should he go? 6.75%. Pretty obvious.

Sorry about all that math, and the absence of the excitement of making a bet on rates rising or falling. Maybe it’ll be of some practical use to you or someone else.

Patient renter in OC

[patientrenter]

SD Realtor

I have to disagree with you that you can see where rates are going in the future from the trend in the recent past. Or perhaps I should say that I can’t! If you can, then I suggest you should trade bonds and you could make many, many times your current earnings. (I’m not being sarcastic.)

I suspect you don’t actually advise your clients that rates are more likely to go up before lock-in, or vice versa. I think the consensus view amongst interest rate experts on what anyone can safely and accurately say about future long rates, and hence the lock-in (fixed) rate is that:

1. The best estimate of it is roughly the current rate

2. Rates will go up (or down) by an uncertain amount from now until lock-in

3. The degree of uncertainty increases with time to lock-in
(and for nerds, it’s approximately proportionate to the square root of the time to lock-in, if the time is short enough)

4. The degree of uncertainty varies with the amount of daily volatility in the rate today (and for nerds, it’s directly prportional over short enough times to lock-in)

Here’s a practical example:
Your buyer is trying to decide between two purchases. Home A can be locked in 1 month from now; B 4 months from now. Otherwise, they are equal. Current fixed rates are 6%. The buyer wants to compare the interest rate risk. He decides to look at the cost of home A at 6.5% as a reasonable worst-case, 50bp higher than today’s rate. Then it’s fair to look at home B at 7% [twice as much over today’s rate, because sqrt(4 months/1 month) = 2].

Here’s another:
Same buyer, but now the daily fluctuations in the rate have gone up by 50%, and the buyer is worried his 6.5% one month from now isn’t worst-case any more. How high should he go? 6.75%. Pretty obvious.

Sorry about all that math, and the absence of the excitement of making a bet on rates rising or falling. Maybe it’ll be of some practical use to you or someone else.

Patient renter in OC

[Alex_angel]

I apologize SDR for commenting on how you were trying to claim you knew that rates would be go up. You did indeed say they would. Looking at the year chart they went this high back in June/July as well. It seems to be just a trend right now, but some analysts think this may be the start of more rate hikes.

[Alex_angel]

I apologize SDR for commenting on how you were trying to claim you knew that rates would be go up. You did indeed say they would. Looking at the year chart they went this high back in June/July as well. It seems to be just a trend right now, but some analysts think this may be the start of more rate hikes.

[NotCranky]

Patient renter
What kind of nerd are you any way? Where does the sqrt part come from?
Thanks for going to the trouble to post that explanation.
Is it safe to generalize more than you have done? What would be some adequate but less scientific rules of thumb for guestimating rate risk going forward.

SDR? How do you come to your conclusion to decide to lock or not?
Would you be reluctant to sign a contract today where the loan floats for 4 months or more . I would be, unless I was ready for a upward surprise.

[NotCranky]

Patient renter
What kind of nerd are you any way? Where does the sqrt part come from?
Thanks for going to the trouble to post that explanation.
Is it safe to generalize more than you have done? What would be some adequate but less scientific rules of thumb for guestimating rate risk going forward.

SDR? How do you come to your conclusion to decide to lock or not?
Would you be reluctant to sign a contract today where the loan floats for 4 months or more . I would be, unless I was ready for a upward surprise.

[Alex_angel]

WHo would say to themselves. “Rates are the highest they’ve been in a year, sign me up”

Why would you lock right now with the peak for the last year. not me. if rates keep on going up then thank god you never bought in now because the market is about to burn to death.

[Alex_angel]

WHo would say to themselves. “Rates are the highest they’ve been in a year, sign me up”

Why would you lock right now with the peak for the last year. not me. if rates keep on going up then thank god you never bought in now because the market is about to burn to death.

[NotCranky]

“WHo would say to themselves. “Rates are the highest they’ve been in a year, sign me up”

Someone who really wanted to buy and could afford todays rate but didn’t want to risk any movement.Someone that was concerned about the fairly reasonable possibility that the rate enviorment is getting worse still and that there may be some relatively large jumps compared to “historical lows”.

To buy or not to buy different topic from wether or not to lock rates Alex. Don’t buy and you don’t have to worry about it for now. You know that has always been my advice.
Best wishes.

[NotCranky]

“WHo would say to themselves. “Rates are the highest they’ve been in a year, sign me up”

Someone who really wanted to buy and could afford todays rate but didn’t want to risk any movement.Someone that was concerned about the fairly reasonable possibility that the rate enviorment is getting worse still and that there may be some relatively large jumps compared to “historical lows”.

To buy or not to buy different topic from wether or not to lock rates Alex. Don’t buy and you don’t have to worry about it for now. You know that has always been my advice.
Best wishes.

[SD Realtor]

Hi Patientrenter –

I guess I will fall back on the line, we agree to disagree. Once more, if I implied that I could predict the performance of the bond market, I didn’t mean to. What I am trying to say is that I would AND do, absolutely look at the yield all the time. It actually dictates my periods of serious looking and making offers verses looking and NOT making offers. Through the winter and spring I did make a few offers (lowballs that all go rejected) on homes I liked. However as of about 3 weeks ago I got chased out because the yield pushed rates beyond my budget (for the price I need to pay to get in the home I want). When the bond market gains some momentum and comes back down then I will start seriously looking again.

Again, I don’t (and I believe have never) ever claim to be able to predict the behavior of the yield. Yet I can honestly say that to have signed a purchase contract in April or May while the yield was trending like it was, AND then float a loan, well… I personally would not have done it, NOR would I have recommended anyone else do it.

Anyone that has seriously spoke to these sales agents at the builders knows how these people work. I believe that the percentage of people who float the rate is staggering, like 90% or something like that. No I don’t have stats but that is from a conversation I had. Think about it, many if not all of the phase releases are WAY in advance of the completion of the home. No lender, preferred or non preferred will lock a loan for that long.

Rustico – On my personal purchases I have never ever floated a loan. I get that sucker locked immediately. So to answer your question, before I even sign a contract, I make sure my mortgage broker has a very precise rate for me. Then I add a fudge factor to see where the rate can move up to in the next few days so that I know EXACTLY what my rate and payment will be. Any mortgage broker will tell you that they receive rate sheets on a daily basis, obviously because they vary with the 10 year. Yet, it is hard to imagine a rate moving more then say 1/4% in two days. That would reflect an extraordinary movement on the market, but we did see that. Anyways, usually to get a lock any more then 45 days is gonna cost you. Any more then that, and I am not sure that it can even be done. I think one time I saw a 90 day lock but it may have been a point or two.

SD Realtor

[SD Realtor]

Hi Patientrenter –

I guess I will fall back on the line, we agree to disagree. Once more, if I implied that I could predict the performance of the bond market, I didn’t mean to. What I am trying to say is that I would AND do, absolutely look at the yield all the time. It actually dictates my periods of serious looking and making offers verses looking and NOT making offers. Through the winter and spring I did make a few offers (lowballs that all go rejected) on homes I liked. However as of about 3 weeks ago I got chased out because the yield pushed rates beyond my budget (for the price I need to pay to get in the home I want). When the bond market gains some momentum and comes back down then I will start seriously looking again.

Again, I don’t (and I believe have never) ever claim to be able to predict the behavior of the yield. Yet I can honestly say that to have signed a purchase contract in April or May while the yield was trending like it was, AND then float a loan, well… I personally would not have done it, NOR would I have recommended anyone else do it.

Anyone that has seriously spoke to these sales agents at the builders knows how these people work. I believe that the percentage of people who float the rate is staggering, like 90% or something like that. No I don’t have stats but that is from a conversation I had. Think about it, many if not all of the phase releases are WAY in advance of the completion of the home. No lender, preferred or non preferred will lock a loan for that long.

Rustico – On my personal purchases I have never ever floated a loan. I get that sucker locked immediately. So to answer your question, before I even sign a contract, I make sure my mortgage broker has a very precise rate for me. Then I add a fudge factor to see where the rate can move up to in the next few days so that I know EXACTLY what my rate and payment will be. Any mortgage broker will tell you that they receive rate sheets on a daily basis, obviously because they vary with the 10 year. Yet, it is hard to imagine a rate moving more then say 1/4% in two days. That would reflect an extraordinary movement on the market, but we did see that. Anyways, usually to get a lock any more then 45 days is gonna cost you. Any more then that, and I am not sure that it can even be done. I think one time I saw a 90 day lock but it may have been a point or two.

SD Realtor

[NotCranky]

“On my personal purchases I have never ever floated a loan. I get that sucker locked immediately. So to answer your question, before I even sign a contract, I make sure my mortgage broker has a very precise rate for me.”

SDR
We are in lockstep on this one!I have seen the rate be off very badly at doc signing too. Not in my favor of course. Yes they fixed it.
The thing I hate about dealing with rates is getting the broker(I usually use a mortage broker) to tell the truth about how much of the rate is for him.

BTW If I wasn’t a real estate agent I would give you my business.

[NotCranky]

“On my personal purchases I have never ever floated a loan. I get that sucker locked immediately. So to answer your question, before I even sign a contract, I make sure my mortgage broker has a very precise rate for me.”

SDR
We are in lockstep on this one!I have seen the rate be off very badly at doc signing too. Not in my favor of course. Yes they fixed it.
The thing I hate about dealing with rates is getting the broker(I usually use a mortage broker) to tell the truth about how much of the rate is for him.

BTW If I wasn’t a real estate agent I would give you my business.

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