Solano Real Estate Scene: Fed cuts rates again

For the third time this year the Fed cut the overnight lending rate last week to 1.5 percent. Mortgage rates for 30-year fixed rate mortgages on conforming and jumbo loans are 3.8 to 3.9 percent average nationwide. These mortgage rates are approximately 50 basis points higher than they were a couple of months ago when the average dropped below 3.4 percent. Historically, 4 percent mortgage rates would be considered very low, making homeownership appealing and affordable for renters buying their first home and homeowners moving up to their dream home. Many consumers have a goal of catching interest rates at the low when they purchase or refinance. One thing I have learned over the past 40 years is that the low is a one to two-day period. In 1986, when mortgage rates dropped to 6 percent, everyone in the country jumped on the refi bandwagon but many missed the window when after a couple months the rates spiked in one week from 6 to 7. In 1992 and 1993, America experienced a huge refi mania where many folks refinanced two or three times while rates dropped month after month for a couple years and then, in the first quarter of 1994, mortgage rates went up a full 1 percent in December 1993, ending a huge amount of refinancing over the previous 24 months. The same thing happened after the largest and longest lasting refinance rush in history, from middle 2000 to December 2003, when in early 2004 rates increased nearly 2 percent in 2004 from the low in 2003. It is almost impossible to predict the exact day or week of the low point. The best thing for a consumer to do is lock in the rate and secure their refinance or purchase as soon as it makes sense. If a person has an adjustable rate mortgage with a lifetime rate cap of 9 or 10 percent or a fixed rate over 4.75 percent and they can obtain a 4 percent fixed rate, they should just do it because if they wait to catch it at the low they may miss out altogether. The same thing applies to purchasing a home. If a person can afford to purchase now, they should just do it and in 10 years, they will look back and say it was the best financial move they have ever made.