When the market goes up, everyone cheers; when the market goes down, everyone panics. This year alone saw the stock market reach record highs and the bond market reach near-record lows—several times! People react to every sign and omen, even when those signs and omens tell them contradictory things. They obsess over each detail so incessantly that they miss the broader trends. That is, they can’t see the forest through the trees.
One recent example of this phenomenon occurred on October 15th, 2014. In a blink-and-you-miss-it moment, US Treasuries dipped below 2% for the first time in almost 18 months. This, of course, translated into lower interest rates on mortgages, and almost instantly the phones at Garvens Mortgage Group were slammed with clients wanting to refinance. Many legitimately benefited from refinancing, but some were so anxious to trim an eight of a point off their interest rate that they didn’t stop to consider the consequences of a refinance—such as whether the savings on the interest rate would cover the closing costs of the loan by the time they sold that home. They saw the opportunity of instant savings but didn’t consider the upfront cost, or whether it would make sense over the medium- and long-term.
Rates are still substantially lower than they were over the spring and summer, even though they’re rebounded from the psychologically exciting 2% barrier. And, really, anyone who can legitimately benefit from a rate-and-term refinance has already done so by now. Most of these people saw the forest—that is, an extended period of depressed interest rates—and took the time to consider all aspects of a refinance before deciding to apply for one. They didn’t obsess over the day-to-day market fluctuations.
(Actually, one did obsess over the day-to-day details: He saw a small dip in rates and decided against locking his rate in case rates dipped even further. Instead, they skyrocketed and he missed his chance to save money entirely.)
Another example of seeing the forest through the trees was the clients—and there were a few of them—who did refinance and decided against refinancing into a 30-year mortgage which, as you know, I consider a government-sponsored scam. In any case, these borrowers didn’t want to reset their mortgages to 30 years after paying down 5 to 10 years already, so instead elected to refinance into 15- and 20-year mortgage products. In most cases, this resulted in higher monthly payments, but over the life of the loan they will have saved tens of thousands of dollars in interest.
In the age of Twitter, 24-hour news, and instant communication, we’re all inundated with data and details every hour of every day. With all this information, it’s difficult to distinguish between the fleeting and the permanent—to know what’s just noise in the data and what’s actually a trend. It takes effort to ignore the insignificant minutiae and focus on the forest, but learning to do so will offer extraordinary benefits.
11-1-2014 Can’t See the Forest Through the Trees