Talking About Rates

For a loan originator, the most frequently asked question has to be "how are rates today." I always respond, "Rates are great!" And that is always true, but it is a relative thing. If the market rate is higher than your rate, or the rate that you were hoping to get, then it might not seem so great.

Ultimately, economic conditions determine market rates for mortgages. In the past week, we heard a lot about rates because both the Federal Reserve and the European banks lowered their target lending rates. But these moves affect short-term rates - the sort that apply to lines of credit, auto loans and the like. We often see long-term rates move in an opposite direction. Therein lies the rub: consumers are told that rates were cut, but their lender tells them that mortgage rates are now higher!

If you want to know if rates are truly great, look at the rate relative to inflation. To oversimplify a bit: When the expectation for inflation or a heated-up economy is high, then long-term rates will go up. Conversely, as the economy turns towards recession and things look bleak, rates go down (as they are right now).

So is now the best time to lock in a rate? Maybe so. The market seems to have priced-in the worst case scenario. Certainly a turn will come soon though. As the economic picture improves, as government stimulus kicks in, and as the housing market rebounds, rates will increase at a pretty rapid pace. You might be looking back in a few months saying, "Boy, those rates were great!"