Loan Officer Loses Six-figures Timing The Market

I know a loan officer who was absolutely convinced that the stock market would crash and that interest rates would plummet after Mr. Trump was elected in 2016, and that loan officer was not alone, as many prominent analysts were predicting as much. As a result, he convinced all of his borrowers not to lock in their interest rates prior to the election. So, yes, he was trying to time the market. But – to the surprise of everyone, stocks did not crash after Mr. Trump was elected and rates instead shot up! The loan officer’s clients were none too happy, and he ended up losing at least six-figures locking in loans paper-thin in order to appease his angry clients. Even worse, the loan officer also sold off his entire stock portfolio prior to the election, and he lost an additional seven figures. This is a great example of the dangers of trying to time the market.

I frequently blog about how futile it is for buyers to try to time the market – when it comes to locking an interest rate or buying or selling a home.

It simply never works to time the market because nobody can accurately predict anything in the short run (under a year), and because there are so many unpredictable variables that can move the market.

For example, we had numerous pre-approved buyers who were sitting on the fence because they were convinced the housing market was going to crash or at least correct.

BUT – many of those buyers are now looking at 2% to 3% higher prices in their desired areas, as housing has been appreciating this year and is expected to appreciate anywhere from 5% (Case-Shiller) to 7% (FHFA) over the course of this year.

Where buyers really get burned though is when they try to time their rate locks after they are in contract.

This has been happening so much lately that one of our managers asked me to blog about it again. 

Even if buyers are certain the overall trend for rates is downward, there is no guarantee at all that they will go down over a 15 to 45-day escrow period.

Buyers would be wise to remember that even the most sophisticated and high-end Wall Street traders can’t time the market (if they could, they’d make billions every month), so there is no way an individual buyer or loan officer ever could. 

The reason nobody can time the market when it comes to interest rates is that there are just far too many unpredictable variables that can move rates up or down on any given day.

The timing of the various events is also always up in the air (the recession that was supposed to be here by now is a great example).

Here is a list of some of the things that can move interest rates on any given day: (1) Federal Reserve announcements or changes in the Fed Funds Rate – like we saw yesterday; (2) Economic data releases, such as GDP, inflation, and unemployment reports; (3) Speeches by central bank officials in the U.S. or overseas; (4) Geopolitical crises, such as a war; (5) Trade wars; (6) Sovereign debt crises like we saw after 2008 where countries are unable to pay their debts; (7) Interest rate moves by overseas central banks; (8) Major stock market moves that push money either into or out of the bond market; (9) Consumer sentiment surveys; (10) Election results – like we saw after Mr. Trump was elected when rates shot up; (11) Natural disasters; and (12) Barbie movies.

TLDR: Timing the market over the short run is just a crap shoot, so buyers should just lock as soon as they can to avoid delaying their close. Buyers should also remember that they can always refinance after they close if interest rates fall. 

Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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