Some thoughts on Interest Rates…
Posted August 18, 2019 in Real Estate Trends
I have been tracking interest rates for about 40 years. When I was finishing my accounting degree in the early 1980’s we were experiencing interest rates in the 18 to 20% range for purchasing homes. A very difficult time for those who needed financing.
My wife and I secured financing our first home in 1988 at an incredible rate of 11.25%. We thought we were in high cotton. Five years later we needed a larger home for our growing family and secured a rate of 6.125%.
Today rates are sub 4% for a 30 year fixed mortgage. In Denmark, a 20 year rate for home purchase is 0%. Incredible!!
What to think about all this?
A wise Real Estate Consultant in the mid 1990’s taught me something I haven’t forgotten. Track Japan. In the early 1990’s their country went to a 0% discount rate (the rate banks are charged for their money to lend). Today some 30 years later it hasn’t changed much.
Most asset values are tied to interest rates. The lower the rate the higher the value. Think about cars and homes.
Almost everything is financed with low rates. School districts, municipalities, corporations, consumer purchases are all financed with historically low rates. It is extremely difficult to get this to change.
My business requires financing. Money is priced as a commodity. It constantly changes. My 40 years of experience with rates have shown a downward trend in rate.
I am a believer in paying the true cost of money. Adjustable mortgages are the truest representation of the cost of money. Think about that the next time you finance a home.
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