Mortgage Rate Mania – Can’t Trust the Prognosticators

If you’ve been thinking about a mortgage refinance or the purchase of a home, you’ve probably been watching the direction of mortgage rates, along with the pundits in the news media. But beware what you read when financial professionals start predicting the future. As legendary CBS-TV newsman Edward R. Murrow said, “A reporter is always concerned with tomorrow.” Therefore, it’s a trap of the trade to assume what lies ahead.

Individuals depend on reporters who interview financial professionals to help them make decisions, because they’re knowledgeable in areas that ordinary people don’t always understand. Pick up any newspaper and you’ll find assumptions about the direction of the economy, the stock market and, yes, mortgage rates. But should you be relying on the news media to tell you when it’s the right time to buy a home or refinance?

Mortgage rates and the news

When using the news media as a resource, it’s important to separate fact from fiction. Here’s a fact: mortgage rates are as low as they’ve been in 50 years. But are they as low as they’re going to go, or are they headed lower? The truth is, it’s impossible to predict. The fiction occurs when someone tells you he knows the answer with certainty.

At the beginning of 2010, pundits were warning that rates were as low as they could go, and mortgage rates would, without a doubt, begin to trend upwards, implying that it was a good time to buy a home or refinance. Back in February 2010, Mark Zandi, chief economist with Moody’s Economy.com, said: “This spring and summer … we most likely will see mortgage rates move higher….”

In April 2010, the New York Times interviewed some of the leading financial wizards who predicted the following about the future of mortgage rates:

From Bill Gross, bond guru from investment firm Pimco: “It’s been a great thrill as rates descended, but now we face an extended climb.”

From Prof. Christopher J. Mayer of Columbia Business School: “Mortgage rates are unlikely to go lower than they are now.”

The Times also reported that the Mortgage Bankers Association “expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.”

If you heeded the advice of these financial psychics – that rates were going higher – you would have missed out on the current rates, which actually went lower. So much for the prognosticators.

It’s always interesting to consider the trends that the media is predicting. But you should base your decisions on what’s right for you in the here and now. If you’re interested in refinancing, make sure that the benefits outweigh the costs involved. It doesn’t matter if rates go up or down a half point, because that won’t significantly affect your out-of-pocket costs.

As the old saying goes, hindsight is 20/20…so consider what’s best for you in the present, and ignore the financial psychics. They just can’t reliably predict the future.