That’s what! Plain and simple. Ever since the knife dropped in on real estate – buyers have been alternately flooding into the market and holding back. Don’t get me wrong…these are difficult times. I understand the hesitancy – however, for those who have a stable job and a stable income with good credit, I have to think that a little green monster called greed is entering the picture. We all see the little green monster in ourselves from time to time – but we need to watch that monster and to tame it. For as Jim Crammer of “Mad Money” fame often says – “Bulls make money, bears make money, but hogs get slaughtered.”
Right now qualified buyers who are sitting on their hands waiting for things to get sweeter are pushing well into hog territory. This does NOT apply to those who are afraid of losing a job, or who don’t have sterling credit. This observation is strictly geared for those who think that if they continue to rent the deals will keep getting better and better. You passed the point of diminishing returns a while ago. Perhaps as long as a year ago.
Interest rates are simply ridiculous at this point. Younger people do not have a memory of the last 40 years. Heck even I don’t. But I am old enough (barely) to remember the high interest rates of the early 1980s. And you don’t have to be that old to realize that super low interest rates are an anomaly – that won’t last forever. Remember this – for every 1% interest rates increase – buyers lose 10% of their purchasing power. You ignore these super-low rates at your peril because they play a critical role in affordability. Affordability is how much you pay to live in your home. Right now affordability hasn’t been this good since Eisenhower was president – over 50 years ago…..
Let’s take a fairly typical 30 year fixed-rate loan amount of $450,000. This is fairly typical for our area:
Think such high rates are just not possible? Look at the last 40 years of interest rates….
The graph below represents 40 years of interest rates courtesy of Freddie Mac. Right now interest rates are hovering around 4.25-4.3% and many in the under 35 crowd are looking at these rates as something of a God-given right. But history tells a different story. Interest rates hit a 40 -year low when they dropped below 5% in 2010. In all 40 years interest rates have averaged below 5% for only two years, 2010, and 2011. They have been under 5.5% for only three years and under 6% for only 6 years. In fact – interest rates were above 10% for 12 years which means historically you are twice as likely to see interest rates above 10% than below 7%. The year interest rates hit their peak was 1981 at 16.6%. Between 1973 and 1983 interest rates did not see levels south of 8%. Interest rates for mortgages were stubbornly in double digit territory for 12 years from 1979 – 1990.
Even when you look at the last 20 years – after the period of stagflation had passed us by – the current interest rates are unprecedented. The green bars indicate rates that are so low they are entering historic territory.
Playing with interest rates this low – counting on them to stay that way or get even sweeter is like juggling with hand grenades …eventually someone is going to get hurt. Like Crammer says – “Bulls make money, bears make money, but hogs get slaughtered.”
©2011 – Ruthmarie G. Hicks – https://thewestchesterview.com – All rights reserved.
Please feel free to contact me anytime to request additional information or to set up an appointment so we can explore your listing or purchasing needs. I am easy to reach by phone, text or email. Or, if you just want to continue your search online, the links below will help you get started.