Mortgage rates are on an unpredictable path at present – and there’s no one-size-fits-all approach for borrowers weighing up the best decision
The outlook for US mortgage rates has been nothing if not unpredictable in the second half of the year, with the 30-year fixed-rate average trending downwards during the summer before inching up in the fall.
That measure has dipped yet again in recent weeks – but the volatility is providing little comfort to hopeful homebuyers seeking clarity on whether it makes more sense to lock in or float their rate in the weeks prior to closing.
Advice on that dilemma depends largely on the specific financial situation of the borrower – and how steep a fluctuation they might be able to tolerate, according to Kevin Leibowitz (pictured top), founder of the Brooklyn-based Grayton Mortgage.
“I tell my clients, ‘You and I are not in control of what the interest rates are going to be,’” he told Mortgage Professional America. “If one of my clients is on the cusp and if a small movement of interest rates up would affect them materially, then I would not let them float because you don’t want them to go under contract and not be able to close.
“So if somebody’s really on the cusp of qualification, then I always lock them. You don’t want to roll the dice and see what happens.”
For those with more leeway when it comes to the qualification cutoff, though, it’s worth accounting for the possibility that rates hit a cyclical high at the beginning of November. Leibowitz said he had advised some buyers then not to lock in: “They’re still not locked,” he said. “‘Let the markets digest, simmer down, maybe see what the Fed commentary is in December, and take it from there.’”
Those clients viewed the best option to be riding things out over the next few weeks and picking a point in December – either before or just after the Fed announcement – to lock in their mortgage.
Mortgage applications increased by 6.3% last week, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending Nov. 22, 2024.https://t.co/fwpQ65Fg4n
— Mortgage Professional America Magazine (@MPAMagazineUS) November 28, 2024
Ignoring the FOMO factor essential in mortgage decision, says exec
Ultimately, the key for borrowers is shutting out external noise and focusing rationally on whether the purchase makes sense instead of wishing or holding out hope for much lower rates. “The interest rate is what the interest rate is,” Leibowitz said. “There’s a huge amount of FOMO – the right time to buy a place was in the first innings of COVID and to close before the end of 2020 when you had the better-priced properties and the lowest interest rates on record. But you can’t go back in time.
“We can’t recreate an environment that’s not here. We can only focus on what’s on the table and if you’re comfortable with the payment and if the house checks a lot of boxes for what you need to do for you and your family or whatever the case might be, then buy it.”
What’s more, while the trajectory of mortgage rates may be unpredictable in the short term, the prospect of lower rates down the line could open the door to a refinancing boom, allowing current homeowners to restructure their mortgage at more amenable borrowing costs, he said.
Purchasing now – when others might be unable to do so – also helps buyers “clear the deck” somewhat with competition who may be waiting for rates to fall, according to Leibowitz.
Inventory constraints mean it’s hardly a buyer’s market. “But those that are participating in the current market are probably having less competition on the buying side for the properties that they’re considering,” he said.
“Gone are the days of 80 people showing up on a Sunday for an open house, and 70 people submitting offers. We’re not seeing another remotely like that, and I think that’s buyers – especially first-time buyers, because that’s extremely stressful.”
Despite rate volatility, homebuyer optimism remains high
Optimism is building as the 2025 market looms into view, with homebuying sentiment remaining strong despite the well-documented turbulence at play.
That’s mainly because a sizable cohort of buyers will remain determined to move ahead with their purchasing plans, Leibowitz noted, even if the current climate isn’t perfect. “I’ve been having a lot of conversations for 2025. People have families and housing needs, and they want to own housing,” he said. “Clients are asking ‘what do I need to do?’ to buy for next year, which is always a positive sign.
“Irrespective of which way the wind is blowing, the underlying tone for a lot of real estate consumers is, ‘I want to own. I need a house. I need whatever it is for me and my family,’ and they’re going to march on, irrespective of what rates are going to do.”
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