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Like my high school prom date, I keep getting mixed signals. Is the economy improving or is it not? Will the Fed raise rates this summer or will they hold them at current levels?
According to two Fed Chairmen, it still looks as though rates may go a little higher sometime this summer (Rate Hike). Only the Fed knows for sure; I think, or do they? Mixed signals…
A rise in the interest rate would signal that the economy is improving. That’s a good thing. With the economy improving more people will have jobs and better income, with more spendable cash. That could lead to more consumers looking to make the move from renting to owning a home which is good for the mortgage market. Millennials may be in a better position to start their home buying process which could help spur the economy even further. Positive signals!
On the other hand, a rise in rates, coupled with an improving housing market, may increase the cost of buying a home, having a negative impact on first-time homebuyers. Fewer first-time homebuyers will have a negative effect on the sale of the homes of the move up buyers. In response, the move up buyers may need to decrease the price of their homes to make them more affordable. This could leave them a little short of the equity needed to purchase a new home. This in turn will have an adverse effect on the housing market. Or will it? Bad vibes!
Will the laws of supply and demand take over? Will home prices and interest rates seek a level that helps make homes affordable across a wide spectrum of home buyers, at all levels? Will the low down payment programs recently re-introduced and the cut in the FHA annual premium be somewhat muted by a rise in rates and home prices, again making homes less affordable for the first time buyers with limited means? Blurred lines! (Credit to Marvin Gaye & Robin Thicke)
Mixed signals, they leave us with so many questions. Now you have some idea of how I felt on prom night. Frankly, I wasn’t quite sure what to do. So I did nothing. You might do the same. But, that would not be a good strategy.
You need to be prepared to service the needs of homebuyers, whoever they may be. That means having a trained staff of originators who are knowledgeable and flexible, with support systems and people ready and able to handle whatever comes their way. You’ll need to figure out what effects an interest rate hike may have on your operation and in what direction you’ll take your business. BTW, what if the Fed doesn’t hike the rates?
Don’t be like me on prom night. Be aware, be prepared and be pro-active. The game has change; are you prepared to play different?
