Skip to main content

Everybody Loves a Good Sequel (Posted January 11, 2016)

In last week’s edition of this award-winning publication (well, it won the “award” of being my grandmother’s favorite mortgage newsletter of all time), we tried to bring a little perspective to the mortgage world – the underlying message to it all was rather simple: keep calm, there’s no reason to panic.  If last week’s edition of our newsletter were a movie, it would have been considered a blockbuster hit, so we’re doing what any major Hollywood studio would do: come out with a sequel as soon as possible to capitalize on its popularity.

You couldn’t turn on the television or fire up the Internet last week without being inundated with headlines like “China Shares Gyrate Wildly” (which sounds like an ‘80s New Wave band) and “Dow, Nasdaq Close Down Triple Digits in Correction on China Worries”.  If you read the article, the tone was very dire as if the Apocalypse were expected to come on Thursday at 4:19 p.m. local time; if you watched a report tied to one of these stories, you might have wondered how the talking heads (a really great ‘80s New Wave band, by the way) were keeping it together – the severity of the news they were reporting would surely make their heads explode (which, depending on the particular news commentator, might have been fun to watch).  Here’s what they weren’t telling you (because, frankly, shock and awe are far better for ratings and readership than just plain good news):

While the two are not directly and inseparably linked, the performance of stocks and mortgage rates have a casual relationship (nothing too serious – they want to date other people) that tells us something.  Usually, when stocks perform poorly, investors get out of stocks and push their money into bonds.  When bonds do well, this means mortgage interest rates tend to stay low or even improve.  Similarly, when something happens in a market on the other side of the globe that causes tension, investors flock to the safe bet: bonds. 


This, of course, is a VERY simplistic explanation of how the stock market affects mortgage rates, but the perspective enables us to take a step back, take a breath, and realize that mortgage rates are most likely NOT going to skyrocket in the near future.  With that said, here’s another piece of good news or positive perspective to take away from all of this:  Low interest rates encourage people to buy and sell homes, thus giving the housing market a healthy boost.  Since housing is a major factor in improving the health of our economy, this tends to support an improving stock market.  So, as a struggling stock market, at present, helps drive down interest rates, those low rates should help the stock market to bounce back.  In plain English:  it’s a good time to buy and sell; and once your property is in escrow, sit down, relax, and turn on the television in the hopes the guy on CNN will have a psychotic breakdown on the air. 

Comments

Post a Comment

Popular posts from this blog

Financial Nearsightedness

Years ago when the Consumer Financial Protection Bureau was created, we had some wacko thought that part of the job of the folks filling its ranks would be to . . . protect the consumer.  In some people’s view, this would mean that builders of new homes would no longer be able to dangle the carrot of “free” incentives if the buyer would finance the purchase through the builder’s in-house or preferred lender.  To those same people, it just made sense that the CFPB was created to even the playing field and make it so that the consumer got the very best deal available.  Well, we were wrong. Builders ARE allowed to offer incentives for using their in-house and preferred lenders despite the fact that sort of goes against the idea that the consumer is getting the very best deal available. And for most consumers, all they see is the incentive, and this computes to less money coming out of their pocket at closing  –  and they’re right (sort of).  The purpose of today’s article is si
Post a Comment
Read more

Topless Professionals - Nope

Fads come and go, certainly, but you can’t always tell the difference in the moment between a fad and a trend  –  because refusing to adapt to the trends can be limiting . . . if not disastrous.  Let me share a couple of examples where failing to see where things were headed didn’t turn out well.   An engineer presented the idea of a “filmless camera” to the executives at Kodak back in 1975, but they laughed him to scorn.     In 2012, Kodak was forced to file for bankruptcy because they failed to adapt to the digital world.     We all know Steve Jobs and Steve Wozniak, but how many of us recognize the name of Ron Wayne (and, no, that’s not Batman’s brother)?     Ronny was the third founding member of Apple, and he sold his 10% stake in the company in 1976 for $1500.     His shares would now be worth over $50 billion.     WAY BACK in 2000, Reed Hastings approached Blockbuster and offered to sell Netflix for $50 million.  Blockbuster turned Hastings down.  Netflix is now wor
Post a Comment
Read more

Sitting on the Fence Only Gives You Splinters

“I woke up this morning and couldn't find my socks, so I called information.   She said they were behind the couch.   She was right.”   Reading the words of comedian Stephen Wright isn’t quite the same as actually hearing them with his deadpan delivery, but they’re still funny.   The same can be said for timeless wisdom: whether you hear it coming directly from the lips of a wizened old sage or you read it in a little missive such as this, it’s still wisdom, right?   They say a picture’s worth a thousand words, so you’re about to get 2,000 words’ worth right here: I’m going to show you two graphs that are going to speak volumes about buying power and interest rates – far more than I could convey if I tried to write over 2,000 words (and probably put you to sleep).   Obviously, this first graph shows how even a slight change in interest rates can affect someone’s buying power in the real estate market.   There’s a fairly big swing between what someone can a
Post a Comment
Read more