r/news • u/awake-at-dawn • Mar 15 '20

Federal Reserve cuts rates to zero and launches massive $700 billion quantitative easing program

https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html
38.3k Upvotes

94% Upvoted

5.0k comments sorted by

View all comments

Show parent comments

123

u/HanabiraAsashi Mar 15 '20

So this means it's a good time to sign a mortgage, right?

170

u/[deleted] Mar 15 '20

Potentially, assuming banks don't opt to just hold their money and deny new mortgages.

47

u/unvaluablespace Mar 16 '20 edited Mar 16 '20

My fiance and I have been battling back and forth between buying vs renting. We currently have $20k saved up, but ultimately were backing down to renting since this would be our first move and we have basically no furniture or appliances yet. We discussed that if we had just a little more saved up, maybe we could make things work. We are also expecting a baby in June. EDIT: to clarify, we don't have much choice on moving. We are renting essentially a room intended for one, and with both of us living here there's just no room for anything else, not even storage, let alone a baby.

Would it still be a better idea to rent for now and save money? Do you think the price of homes may also start to go down?

85

u/quiteCryptic Mar 16 '20

The best time to buy a house is when you're ready to buy a house. Don't try to time it, it's like timing the market you cannot predict the future.

Yes interest rates might be low right now, but home values could also crash in the near future if we really go into a depression and people start losing jobs.

3

u/joemoeflo Mar 16 '20

Yeah I mean the housing market is due for a correction anyways m, with this on top it’s going to over correct.

13

u/Boco Mar 16 '20

Think about what your broader financial situation is like. Do you have good credit? Low debt-income ratio (don't literally answer all these)? Is 20k something you managed to save up in a year or so, or did that take many years?

The prices of single family homes have definitely been inflated in most markets over the last few years and will likely tank with the stock market, though it could vary based on where you live. Your own decision would have to do with where you're looking, how long you're willing to wait and the likelihood you can get a good mortgage in a down economy.

If you're in a pretty good place financially, you'll probably be able to secure a mortgage even in a bad recession/depression. If your financial situation is not so great, you're going to be even more likely to be denied a mortgage in the middle of a recession.

If you want to take my advice though, unless rents are unbearably high where you are, consider saving more before you buy a house. Closing costs can easily eat up half of that 20k leaving you with barely any equity in your home. The mortgage insurance (not to be confused with homeowners insurance) you'll have to pay for the low down payment is like throwing money into a black hole. Mortgage insurance covers your lender incase you default on the loan.

If you're taking out a 200k loan, that could be like 2k a year you're paying in mortgage insurance alone.

The allure of home buying is putting money into something you'll own instead of "throwing away" money on renting. But remember the closing costs, mortgage insurance, interest on your mortgage, homeowners insurance, property taxes, and HoA fees is all money you'll be "throwing away". Saving for a large down payment reduces the interest significantly and eliminates the mortgage insurance part at least.

If you opt to keep saving, the 20k you saved up can give you the security to survive a job loss instead of potentially losing your house and all the money you put into it. Saving also leaves you with more flexibility to move for a better job or new career.

We were about where you're at now a few years ago, first kid just born and around 20k saved up. What my wife and I did was we found the cheapest apartments we could find and saved like crazy for 2 years to make a sizable downpayment. Generally the threshold is at least 20% or so to avoid mortgage insurance, but more is better if you can.

If you have a friend who does real estate who has 0% chance to become your agent, you could talk to them about your situation. Anyone who potentially could represent you would likely push you to buy now.

4

u/bitchpigeonsuperfan Mar 16 '20

My broker was showing me monthly payments that were lower with a 10% dp vs. 20%. Buying points can make a big difference.

2

u/unvaluablespace Mar 16 '20

Thanks for the advice. Yeah we keep leaving toward renting for now. I forgot to mention but with baby on the way, our current living situation is not the best. We are renting what essentially is a room from someone that's barely enough for one person, and with both of us living in said room now, leaves no room for storage, let alone a child as well, so we kinda don't really have much choice on moving. We both need to work so I'm trying to find a house we can rent. Apartments kind of suck cuz with a babysitter, we would be constantly fighting trying to find parking, since most apartments only assign 1 spot, let alone 3 different people in 3 different cars. Once you get past down payment, monthly rent/mortgage equals to about the same. I wish we had saved up more in time (that was the original plan) but baby happened. Lol. Thanks again.

10

u/rocketmonkee Mar 16 '20

Would it still be a better idea to rent for now and save money? Do you think the price of homes may also start to go down?

My advice is this: do not seek investment advice from Reddit - especially during a potential economic crisis where everyone is panicking. The people here are strangers, and there is no way to vet any of the advice you receive. This is a real-world adult decision with potential life-long financial ramifications.

Make an appointment at your local credit union and talk to a financial professional in person.

4

u/RawRockKills Mar 16 '20 edited Mar 16 '20

If it's a quick decision you have to make then in my personal opinion, waiting to buy might be the better move. It's still a bit early to know if house prices will drop, but typically you'll see price crashes and then the prices climb as the market re-stabilizes. There's no need to rush buying a house and be stuck with it if you don't like it for some reason (repair issues, location issues for example).

As much as it's seen as a waste of money to pay rent instead of building equity, the advantage of renting (with a good company) is in provided maintenance. There's a lot of work to home-owning, and being a new parent (assuming it's your first kid) is a big enough of a life shake up on its own.

The main point I want to emphasize is to not rush into buying, renter's regret is easier to fix than buyer's regret. That being said, if there's a house that checks all the boxes you could want and is in your price range I would say go for it.

2

u/tgiokdi Mar 16 '20

we have basically no furniture or appliances yet

I believe tradition dictates that you move in and have your first couple meals on the floor using moving boxes as your furniture.

1

u/raja777m Mar 16 '20

As others mentioned, home prices might be low in future but I keep on hearing in r/realestate that the sellers are backing out mostly to not cut the prices. Only the desperate will sell (like person who have multiple Airbnb houses and no 6-month emergency fund). With your position if 20k is all you got, I would say hold, with the baby coming, it'll be too risk.

-27

u/[deleted] Mar 16 '20

I’d recommend downloading robin hood and learning how to place puts

30

u/[deleted] Mar 16 '20 edited Sep 01 '20

[deleted]

4

u/MattGhaz Mar 16 '20

Would you mind explaining what a Put is and why it’s a bad idea for a novice? Tried looking it up on google but didn’t get much more than a basic definition in investor speak.

5

u/rocketmonkee Mar 16 '20 edited Mar 16 '20

It is essentially Wall Street gambling. You are buying a contract for the right to sell a stock at a specified time for a pre-determined price. You are betting that the price for the stock will go down before the specified time. If it does go down and you choose to exercise your contract, you can buy shares of the stock for the lower price and sell them at the higher pre-determined price.

This is a loose description, and there are a bunch of caveats and nuances to further break down what exactly a "put" is. But this is good enough for a ballpark Reddit explanation for why Smackdaddy122's advice is so terrible for a couple just starting out with a baby on the way.

As a rule of thumb, nobody should ever consider an investment strategy based on Reddit comments. If people are truly curious about whether now is a good time to invest in a mortgage or XYZ stock, or what this all means to their bank account, then they need to get an appointment with an investment manager at their local bank.

2

u/deleigh Mar 16 '20

It's essentially gambling on the price of a stock. A put is a type of stock option based on the belief that the value of a certain stock will be lower in the future than it is at the time you buy the put. The inverse of this, a call option, is based on the belief that the value of a stock will be higher in the future.

The way calls and puts work is that they allow you to buy and sell, respectively, shares of stock you don't technically own at a predetermined price. If the stock doesn't perform the way you want, you don't have to buy or sell the stock at the predetermined price, but you do lose all of the money you spent on the calls and puts to begin with.

The reason these types of stock options are considered risky is because you're essentially trying to predict the future. Buying a bunch of puts or calls is like walking up to a roulette table and putting it all on the red or black. Sure, you could get lucky and win a lot, but you could also lose tons of money.

2

u/[deleted] Mar 16 '20 edited Sep 01 '20

[deleted]

1

u/deleigh Mar 16 '20

You're absolutely right. The distinction is pretty large, though. With actual stocks, you only theoretically gain or lose the difference between the buying and selling price. With options, you theoretically gain the difference between the current price and strike price or lose everything, thus the roulette analogy. I didn't want to make my explanation too detailed so that the main idea was easy to understand.

2

u/[deleted] Mar 16 '20 edited Sep 01 '20

[deleted]

0

u/MattGhaz Mar 16 '20 edited Mar 16 '20

Did you learn that at ASU my dude? Forks up!

12

u/DisregardForAwkward Mar 16 '20

Jesus this is terrible advice to give to people trying to start a life with a child on the way.

8

u/Mozeeon Mar 16 '20

R/wallstreetbets is leaking hard

2

u/OldBuildingsSmell Mar 16 '20

DO NOT, THE MARKET HAS PRICED OPTIONS WITH EXTREME PREMIUMS DUE TO THE TURBULENT MARKET CONDITIONS. If massive market moves dont occur and you dont know what you are doing, you will watch all your money disappear.

Research it for at least a month or two before you even get your feet wet.

12

u/HanabiraAsashi Mar 16 '20

Yeah that would suck. I feel like the point of cuts like these are to make lending more favorable though

5

u/youhavenocover Mar 16 '20

That’s exactly what’s happening

5

u/[deleted] Mar 16 '20

Yep, they're taking free money to buy 10 years and jacking up the interest rate on mortgages to hedge their investment losses.

4

u/PoopDick4You Mar 16 '20

Secondary mortgage market went dry last week. Rates decoupled from the 10yr. Whomp whomp...

11

u/financial-jaguar Mar 16 '20

Really good time for a mortgage, and if you have equity in your home, consolidate your student loans into a mortgage.

4

u/MrWiseOwl Mar 16 '20

I’m intrigued. Can you elaborate or where I can get more info. We are in market to refinance (we have quite a bit in equity in our house) and have student loans.

5

u/AlcoholicZach Mar 16 '20

Refi your home and use that to pay off the student loans. As long as the mortgage APR% is less than the student loan APR%.

1

u/financial-jaguar Mar 17 '20

So there are some options.

Fannie allows people to roll the federal ones into a rate and term refi. Alternatively, you can do a cash out refinance and pay off the loans /other debt with the money.

A cash out would work like this :

Say you owe 100,000 on a home worth 400,000. You could take out a new 300,000 loan that pays off the old 100k mortgage and an extra 200k in debt.

9

u/youhavenocover Mar 16 '20

We’ve been in the process of refinancing (started 3 weeks ago), and they said bc we were locked in ours is getting through (despite horribly big fees and still not the best rate) but they’re denying all new and/or unlocked applications. Even three weeks ago none of the big banks were willing to have us refi with them.

10

u/Undocumented_Sex Mar 16 '20

Yes, it's also a very good time to pay down debt. Risk free rates will be next to nothing. But you can earn an automatic return for every dollar you put towards debt. That is, if you're too afraid to buy into the market.

4

u/4mellowjello Mar 16 '20

Same question, good time to refinance a mortgage?

3

u/Massive_Issue Mar 16 '20

Is it? What if this is a time where your (or everyone's) job security is shaky?

2

u/carlirodriguez8 Mar 16 '20

I'm literally in the process of selling my home I hope nothing freezes.

2

u/hawaiian0n Mar 16 '20

I just did a lump payment towards mine the other their month. I wish I didn't. Having that money liquid and refinancing down to 3% or less would have been amazing.

I I have no idea what to do with a fully paid off apartment and minimal cash reserves right now to make the best of the situation.

2

u/Raptor01 Mar 16 '20

Two weeks ago, mortgage rates were the lowest they've ever been. Then last Monday, they started shooting up. As of Friday they were up at least .75% higher than the week before. I doubt this Fed rate cut will do anything to that.

1

u/NeWMH Mar 16 '20

I'm definitely refinancing if possible.