I did not think for one second last November that I would be saying this, but mortgage rates have dropped under 4.5 percent, and if you locked a loan last fall, you should take a look at refinancing.
It has been a wild ride for interest rates over the last 10 years. In 2014, I was so confident that rates would jump over 5 percent by the end of the year that I actually began telling people that. I wasn’t alone. I was really just repeating what every expert I read was telling me. By the end of the year, rates fell to less than where they were at the beginning.
I learned a lot from that mistake in 2014. I learned to never predict what interest rates were going to do. And I didn’t – until last year. The economy was pumping. Economists were saying we are running on all cylinders. I didn’t say that I thought rates would jump over 5 percent, but I did say things like “I can imagine how they could get up over 5 percent and stay there. It’s hard to imagine them going much lower.” That felt safe to me to say. You can’t blame someone’s imagination, right?
Well, it seems as though that period where we were running on all cylinders may have been a peak. Economists said that unemployment was low and productivity was maxed out – meaning not only were we using practically all of the workforce, but we were getting as much production out of that workforce as we were going to get.
People got nervous after that. The only really negative news that I kept hearing was that we were due for a recession. Economists pointed to small cracks in the global economy, but couldn’t really put their finger on a culprit that would bring us into recession. The overwhelming call was simply that we were due for one.
The data hasn’t been all that bad. According to the Wall Street Journal, corporate earnings are still expected to post single-digit percentage growth in 2019. The labor market has added jobs for 101 consecutive months — it’s longest streak ever. And this one was a huge shock to me. Nationally, sales of previously owned homes soared 12 percent in February.
But the global economy has been showing consistent stories that are not so rosy. Economic growth has been slowing. This slowing has led many economists to think the global economy is too fragile right now to handle the impactful surprises that are resulting from the trade wars. Concerns have been so strong that the Federal Reserve made comments last Thursday that it will probably not raise its short-term interest rate at all this year.
The Federal Reserve is not one to make statements lightly. It knows that every move it makes results in investors moving hundreds of millions of dollars from one place to another. It spends months, sometimes years, laying subtle hints about what it will do in the future. Many experts believed they would draw back on how many rate increases they would do this year. Few thought they would not do any. Mortgage interest rates had been adjusted really to be ready for the 2-3 increases that everyone thought the Fed would make this year. So when the surprise came last Thursday that there would likely be no increases, mortgage interest rates sank quickly.
My line right now is that it’s great for those looking to lock in a mortgage, but not great for our economy. There may be a slowdown in growth, but it doesn’t appear, from what I’m reading, that anyone thinks there will be a big drop, or steep fall. It took us a good, long while to get here. We grew slowly, and if the old saying “the bigger the come, the harder they fall” is true, then usually so is the opposite.
Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases.
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group