It’s the Economy. But the Transaction Still Has to Work.

Back in 1992, political strategist James Carville kept the Clinton campaign focused with a simple reminder:

“It’s the economy, stupid.”

Strip away the politics, and there is still something useful in that thought when we talk about mortgage rates today. The Washington Post

It’s the economy.

Inflation.

Economic growth.

Energy prices.

Geopolitical uncertainty.

Government borrowing.

The bond market.

Investor confidence about what happens next.

All of those things ultimately work their way into the environment in which mortgage rates are priced.

And right now, we have quite a few of them pushing in the wrong direction at the same time.

What Would Bring Some Normalcy Back?

I don’t think mortgage rates need some miraculous event to suddenly fix everything.

What we probably need first is fewer things going wrong at once.

Less geopolitical uncertainty would help.

Less pressure from oil and energy prices would help.

Continued progress on inflation would help.

A more predictable economic environment would help.

And greater stability in the bond market would help.

HousingWire’s Logan Mohtashami has repeatedly identified the Iran conflict, oil prices, inflation and the bond market as important risks for mortgage rates this year. But none of those operates by itself. HousingWire

Mortgage News Daily made essentially the same point recently. Oil has mattered, but so have economic data, Treasury supply, bond-market supply and investor demand. Mortgage News Daily

So if some of those pressures begin to come off the table, I think we have a reasonable path toward a more normal mortgage market.

That does not mean rates suddenly collapse.

It does not mean we return to the unusually cheap money of several years ago.

And nobody can tell you exactly when improvement will occur.

It means the market could gradually become more stable and potentially less expensive.

But Rates Are Rates

Here is the other side of the conversation.

People still have transactions to make.

Families grow.

People relocate.

Someone finds the home that fits what they want.

Someone else finds an investment property that makes financial sense.

Life does not stop while everybody waits for the perfect mortgage market.

Today may not be your time.

But it may be exactly the right time for somebody else.

And depending on your circumstances, it may still be the right time for you.

Today’s Rate Has to Work Today

The daily Mortgage News Daily index finished Thursday, October 8, at 7.50% for its benchmark 30-year fixed scenario.

Separately, the Mortgage Bankers Association reported an average conforming 30-year contract rate of 7.49% with 0.84 points at 80% loan-to-value for the week ending October 2.

Those are market measurements, not individual borrower quotes, but there is no getting around the basic message:

Mortgage financing is expensive right now. MBA

So acknowledge it.

Then run the numbers.

If you find the home you want, the payment is comfortable, you have the cash you need, and the entire transaction fits your circumstances, today’s interest rate does not automatically make the purchase a bad decision.

Could rates improve later?

Absolutely.

Could they move higher first?

Absolutely.

That is why I would never recommend buying a home today based on the assumption that you will be able to refinance six months from now.

The transaction needs to make sense with today’s numbers.

If rates improve later and refinancing becomes attractive, that becomes an additional opportunity.

I think that distinction is important.

Make today’s transaction work with today’s numbers. Let tomorrow’s numbers be an opportunity, not a requirement.

And Sometimes the Property Is the Opportunity

There is something else buyers need to consider.

Mortgage rates can change.

The particular property you want may not be available later.

That doesn’t mean you should buy something you cannot comfortably afford because you are afraid of losing it.

It means rate and property availability are two separate variables.

If the right property is available, the price makes sense, the payment works, and you intend to own it long enough for the decision to make sense, there is nothing irrational about purchasing in a higher-rate environment.

Then, if financing conditions improve later, you can evaluate whether refinancing benefits you.

Investment Property Is a Different Conversation

Investment real estate requires a different thought process.

There, the emotional component should be much smaller.

The property has to work mathematically.

Is the seller asking a reasonable price?

What is the income?

What are the expenses?

How much equity are you investing?

What is the debt service?

What return are you expecting?

And does the property produce that return with the financing available today?

DSCR financing, or debt-service-coverage-ratio financing, is built around a similar concept. The lender is looking primarily at whether the property’s rental income supports the required housing debt rather than qualifying the borrower solely from traditional personal income.

Interest rate absolutely matters because it changes the debt service and therefore changes the economics.

But the interest rate does not determine whether the investment itself is good.

A lower rate cannot rescue an overpriced property.

If the seller has priced the property beyond what its income and economics justify, the deal may not make sense regardless of the financing.

On the other hand, if the property can be acquired at a reasonable price, the investor has appropriate equity, the income supports the debt and the expected return makes sense, then the investment may work at today’s rate.

Again:

Make the investment work with today’s numbers. Anything better tomorrow is upside.

This Is Where Evaluation Matters

I think we sometimes spend too much time asking:

“Where are rates going?”

It is an interesting question.

It is not always the most useful one.

For a homebuyer, the useful questions may be:

Can I comfortably afford this payment?

Is this the property I want?

Does the price make sense?

Do I have enough liquidity left after closing?

Does this fit where I expect my life to be several years from now?

For an investor:

Does the income justify the price?

Does the debt structure work?

What is my return?

What risks am I taking?

Those questions can be answered today.

Bottom Line

Yes, mortgage rates are high.

And yes, there are legitimate reasons to believe that a reduction in some of today’s economic and geopolitical pressures could eventually create a more normal rate environment.

But we do not know the timing.

So I would not put my life, my home purchase or my investment strategy entirely on hold waiting for somebody to ring a bell and tell us the mortgage market is normal again.

Evaluate what is in front of you.

If it does not work, don’t do it.

If it does work, understand why it works.

And if rates eventually improve, you may have another decision to make later.

Make the transaction work with today’s numbers.

Let tomorrow’s numbers be an opportunity, not a requirement.

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About the Author

Clay Edmonds is the Corporate Educator and Complete Mortgage Advisor at Complete Mortgage LLC in Hollywood, Florida, and the creator of MortgageSimplified.net. Clay focuses on simplifying the mortgage process and helping borrowers and real estate professionals better understand their financing options and make informed real estate financing decisions.