Will Interest Rates Start to Climb Soon? Time to Get Off the Fence

by | BiggerPockets.com

It is no secret that money has been exceptionally cheap this year, provided you can qualify for a loan. Rates this low have not been common for half a century. But, according to a recent article in the New York Times, today’s “super-low rates are not likely to last much longer.” You will be excused for thinking you might have heard this before, as commentators have been making predictions almost identical to this since at least March of 2009. Indeed, I’ve personally been somewhat surprised how long sub 5% rates have persisted in the market, largely as a consequence of the Obama adminstration’s extraordinarily loose money supply policies.

However, if you’ve been sitting on the fence on a new acquisition or refinancing of an existing property, you might want to (finally) sit up and take notice. As the New York Times indicated, there are signs that the Fed is planning a serious change of course that may have profound consequences for the credit market. The Times wrote that the “the Federal Reserve program that has driven rates to such lows, which involves buying $1.25 trillion in mortgage-backed securities, is scheduled to expire in March, and Fed leaders have said that it would not be renewed. Some analysts believe rates could jump as high as 6 percent in the spring.

Did that get your attention?

Those of you who have been undecided about whether to buy need to get serious. I have long endorsed sticking to a classic 30 year fixed rate mortgage, both for home ownership and small (1-4 unit) investment properties. These loans have the truly unique advantage of being able to lock up a piece of real estate, together with all of the labor and the commodities it takes to construct housing units on the property, and pay it off over a very long period of time, while letting inflation do its magic to raise the value of your property (and your rents if you are renting out units.) There are some great deals in virtually every real estate market right now. And, if you can take advantage of today’s rates, by the time your final mortgage payment is due I can virtually guarantee you that you will be laughing at how small it seems compared to the price of everything else.

So, it appears that we are reaching a critical time period for real estate investors. The next several months may play a key role in your financial future. Time to get off the fence.

Photo: o paisson

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  1. Thanks for posting this. We have all been expecting this for awhile and those who are “On the Fence” in many cases either dont think that they will rise anytime soon or don’t believe that interest rates can move up very far. Those of us who actually purchased homes in the late seventies and early eighties know very well how high rates can jump in a time of high inflation.

  2. “New York Times indicated, there are signs that the Fed is planning a serious change of course that may have profound consequences for the credit market. ” We need a link, or a quote please. The government has indicated that it will do everything it can to keep the commercial bank rates currently at 3.25% as low as it can for as long as it takes. When you take out volatile energy prices, inflation is barely visible. However, the Fed stops it’s acquisition program of MBS in the spring of 2010, so interest rates will most likely go up by 0.25 to 0.5%. But you have to read this against the huge foreclosure problem, and shadow inventory that will be us until 2013. This is not necessarily the time to get off the fence. In fact, I would strongly urge anyone to do their own due diligence, rather than listen to calls like this.

    • Bizley,

      Thanks for your comment. The link is already to the full article in my blog post (click on “New York Times” hyperlink.) I don’t understand why you think volatile energy prices won’t ultimately be reflected in increasing costs of just about everything else, as it takes energy to make and/or transport all consumer goods. Also, for the record, I’m all in favor of due diligence. My point is only that if you want to lock in a low rate, you’d better not be paralyzed by indecision at this point in time.

  3. Energy costs are reflected in inflation, which is my point. If you remove them, or their volatility, then the picture is different. I am offering to balance your view, which is that of many realtors who are trying to drum up business. All things being equal, nothing wrong with that, but as a buyer I have become very weary if hearing the cheer-leading slogan “Now it a great time to buy”. It even continued at the peak of what is the worst real estate bubble in history. It has become like a red rag to a bull, and the reputation of the industry has been tarnished as a result. It would behoove the industry to nurture relations with its client base, rather than antagonize it.

    There are currently a lot of misgivings, and mistrust between those in the industry (and I include lenders, and Wall Street), and the tax payer who is the loser in this fiasco. It would therefore be naive not to expect a backlash, and a little callous to feign ignorance in the face of it.

    Having said that there are many realtors whom I respect enormously, because they were among the first to acknowledge the problems, and realized early on that to do so was to their benefit in retaining clients, and attracting new ones.

    • Florence Foote on

      Although the inflation point still baffles me, I agree with everything else you wrote. You have good company, however, as the government’s CPI figures typically exclude energy, probably because they do not like people to know the true rate of inflation. (I don’t know about you, but I certainly pay a lot for energy, no matter how much I may try to conserve. And that’s not even counting the cost of energy that is built into every consumer product and the cost of building materials.)

      If you’ll read some of my other posts here, and on my own blog, you’ll see that I’m anything but a cheerleader for the real estate industry. Nevertheless, I still feel that there are currently some great deals on loans at historically bargain rates. (I’m personally in the process of refinancing two properties — so I put my money where my mouth is.) Send me an email in six months and we’ll compare notes. My prediction: rates will be a lot higher than they are now.

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