Bill Morris: Perspective on mortgage interest rates

Perspective on mortgage interest rates

I have been writing for many months about the coming increase in interest rates.  At the end of March 2010, the Fed ended its program of artificially supporting demand for mortgage-backed securities, keeping interest rates lower than the market would have dictated otherwise.  The time has come, and rates are beginning to rise:

Mortgage Rates Jump

The article notes:  "Many analysts forecast that rates will rise as high as 6 percent by early next year."  

I suspect that's true.  Rates may even go a little higher, but (a) there is plenty of time left to make your move if you're in the market for a home, and (b) from an historical perspective, there is really nothing wrong with paying 6% to 6.5% for a mortgage loan!

Here's a summary of interest rates for a 30-year fixed rate mortgage since April 1971:

Mortgage Rate History

Ah, there are the "good ol' days" of  16% to 18% mortgage rates in 1981 and 1982!  But let's look at just twenty years of history -- long after that ugly peak.  From April 1990 through March 2010, the average mortgage rate was 7.14%!  The average over the past 10 years was 6.21%.  The truth is that we've only had mortgage interest rates in the 5% and under range for about fifteen months!  And already we consider that "normal," and act as if anything higher will hurt the housing market?

I am not anxious for rates to increase, but it's happening.  Keeping the whole picture in mind, however, all the benefits of home ownership remain -- financial leverage, equity build up over the long term, deductibility of related taxes and interest expenses, and -- most importantly -- the knowledge that you have something really significant that's yours!

For all the reasons I have written about elsewhere in recent months, the Austin/Central Texas economy and real estate market remain perhaps the strongest in the United States.  If it's your time to move, don't let headlines about a "jump" in interest rates scare you off.

Bill F. Morris, ABR, CRS, CDPE, e-PRO, MBA
RE/MAX Capital City
Call or Text:       512-785-3345
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Comment balloon 2 commentsBill Morris • April 08 2010 11:03AM

Comments

You are so right Bill!  The buyers who continue to sit on the sidelines waiting for the best environment in pricing are being pennywise and pound foolish - the small amount they might save in housing value at this point in the cycle will be outweighed by the coming (and current) increase in rates.  And while rates must rise to bring the market back to equilibrium, I don't think that they are likely to increase beyond 100 to 150 basis points in the next 3 years.

Posted by Michael Goodheim, Cash Flow Expert for Real Estate Pros (Commission Express of Western Washington) over 10 years ago

Bill,

My first home purchase, 34 years ago, had an 8 1/2% interest rate.  My 2nd home, 4.5 years later, was 16% variable with a 5% cap each year (yikes, did we sign that note?!).  My 3rd home, 1 year later, was 21%.  Jimmy Carter was President, then.  We refinanced our last home 2 years later, at  12 1/2%, then 4 years later to 8 1/2%, then 6 years later to 5 1/4%.  It's been a ride, for sure!  When we purchased during the Carter years, rates were extremely high.  However, the builder had no work, none.  So, when we knocked on his door, to build us a new home, he was so grateful!  His finish carpenters were the ones who cleared the land for the construction.  That being said, when the rates go down, people buy.  When the rates go up, people buy! 

It's a Good Life,

Fran

Posted by Frances C. Rokicki, Broker-Mentor,CRS (Fran Rokicki Realty, LLC) over 10 years ago

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