Thursday, September 10, 2020

Get ready to refinance. Again.

Get ready to refinance. Again.

At least there is one positive aspect to the COVID-19 crisis, the drop in interest rates.  And notice I said get ready.  It appears it would be better to wait to refinance. If you can.

The Green line in the image above is the difference between the 10 year Treasury bond rate and 30 year mortgage rates.  If you notice, during the 2008 and current recessions the difference between those two rates expanded dramatically before eventually closing.

I downloaded the data from the graph above.  The average difference is 1.76% with a standard deviation of 0.29%.  Right now we are at a ~1.65 standard deviation event, which is very unusual.  To put it another way, if mortgage rates were 'average', right now they would be 2.44%

Yes, a sub 2.5% 30 year mortgage.

Now, we may not get there.  10 year Treasury rates could rise before the mortgage market normalizes, or they could go down.  I'm not going to make a prediction on interest rate movements in this post.  But if nothing happens with longer term Treasury rates we could see a sub 2.5% 30 year mortgage rate in the future.

Refinancing your house is only an option if you can, and for quite a bit of America this unfortunately is impossible due to business or job dislocation. But if you are able, go to the link above and watch it weekly. I sure am.  

Tuesday, July 7, 2020

Predictions are hard, especially about the Future

One of my favorite books ever is the book Dune by Frank Herbert.  He built a universe with a complex religious, economic and political framework that transports you to a completely different world.  It is not a dry technical read about an alternate reality but a compelling and rich story with an amazing tapestry behind it. 

I will stop gushing over the man, but I want you to watch this video and remember the respect I have for this man and his capabilities.  It's short at around 4 minutes.  He explains his natural curiosity and his broad skill set that created the situation for him to write the book series.  However even Mr. Herbert gets the end of fossil fuel prediction VERY wrong. 

When you extrapolate out the current state too far into the future one will come up with very wrong results.  The world is extremely dynamic.  Humans are very clever.  New technologies and innovations which were too expensive drop in price enough to totally transform the dynamics of a system, rendering your prediction invalid.

In this 1977 interview he states we will run out of fossil fuels in 40 years.  We are 3 years past that deadline.  Even brilliant people can be wrong on occasion.

Another attempt at a Dune movie is near release. I hope it's better than the last one.