Interest rates are not going back to 3%

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Interest rates are not going back to 3%

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

I am sure many of you will disagree with me, but I am seeing a lot of posts talk about “today’s high interest rates”

I believe there are many of us who view today’s rates to be more of the norm versus the outlier.

If you look at the current data, interest rates are not going to be dropping significantly in the near future. Could interest rates get back potentially into the 4’s, yes.

But I believe the days of the federal rate being at 0% and mortgage interest rates in the 2’s and low 3’s is not something people should bank on in the near future.

It’s not only goes for acquiring property, but for those who have invested in syndications where the exit was a refinance at a low rate.

Let the fireworks begin

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Brad Jacobson

Realtor · Ogden, UT · Member since 2019 · 338 posts · 415 votes

I'm going to offer a different opinion because I believe our government has become so addicted to easy monetary policy that I bet they'll happily drop the fed rate back to 0% at the first chance they get. Fiscal responsibility is only going to continue to get worse under our current leadership and political landscape in my opinion.

I wouldn't bank on it happening in the near-near future but I'm fairly confident that down the road we'll have another bizarre incident like Covid or a 2008-style recession and our geniuses at the Fed will happily drop rates back to zero and keep them there way too long again in a similar reckless fashion.

Personally, I just hope my portfolio is large enough at that point that I can refinance the whole thing back into the 2-3% and be set for life. That's what I'm banking on and looking forward to!

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Reed Rickenbach
Real Estate Broker · Memphis, TN · Member since 2020 · 202 posts · 203 votes
3y
I see most current underwriting expecting the 4's by Q4 2023 or Q1 2024. Haven't seen anyone expecting rates back in the 2's or 3's any time soon.. that would be a crazy assumption.
However I'm sure a lot of underwriting in 2020 - 2022 included rates staying historically low.
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Paul Pratt
Real Estate Agent · Member since 2023 · 91 posts · 80 votes
3y
@Chris Seveney I don't think there will be any "fireworks" as I'm hoping everyone in this forum has enough data/info to not be shocked by this. Maybe non-investors would have more pushback on your statement.
Let's be honest, most people didn't get it in the 2's. Some did in the 3's and a lot of people in the 4's are mad they didn't get the 3's. Everyone else who waited is sitting back hoping for a miracle while home prices have stabilized and not crashed like they hoped.
Lesson, and I think you'll agree is be active when you can. Your window may close at any minute.
4 Reply
Brad Jacobson
Realtor · Ogden, UT · Member since 2019 · 338 posts · 415 votes
3y
I'm going to offer a different opinion because I believe our government has become so addicted to easy monetary policy that I bet they'll happily drop the fed rate back to 0% at the first chance they get. Fiscal responsibility is only going to continue to get worse under our current leadership and political landscape in my opinion.
I wouldn't bank on it happening in the near-near future but I'm fairly confident that down the road we'll have another bizarre incident like Covid or a 2008-style recession and our geniuses at the Fed will happily drop rates back to zero and keep them there way too long again in a similar reckless fashion.
Personally, I just hope my portfolio is large enough at that point that I can refinance the whole thing back into the 2-3% and be set for life. That's what I'm banking on and looking forward to!
17 Reply
Doug Smith
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
3y
I totally agree with you. The mega-low interest rates were certainly not normal. They hit their lowest point ever in January of 2021, but where we are at right now is much more "normal". I remember when I bought my house in 2001. I worked for the bank at that time and got an extra special deal. My friends and family were amazed that I got such an incredibly low 7.25% 30-year fixed rate. People have gotten spoiled, but they seem to be accepting the truth that sub-5% rates are not the norm. One of my favorite charts is one put out by the St Louis Fed. I use this in a lot of my presentations to illustrate your point: Historic Mortgage Rates - St Louis Fed
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Troy P.
Investor · Baton Rouge, LA · Member since 2019 · 184 posts · 167 votes
3y
I agree we probably won't see 3% for a while, but let's be real, every ~10 years there is some kind of "event" that triggers a recession of some form and sends the banking industry into panic-mode. Rates have been steadily going down for 40 years as home values steadily increase. If rates want to go up, home prices need to either stabilize or go down. Oh, and then there's that pesky inflation. It is definitely interesting to watch...
3 Reply
Colin Higgins
Member since 2022 · 77 posts · 47 votes
3y
Amen, we had it good for a while. Don’t expect lightning to strike twice.
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Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
3y
I was just reviewing my portfolio the other day and noticed a property I refinanced in 2018 was at 5.85%. How soon we forget!
Even if we see baseline rates (for owner occupants) in the 4's in the next year or two, that's still means 5's and 6's for investment properties.
This is the new normal, and I expect the market to crank back up in the Spring as seller's come to terms with the reality of rapidly increasingly supply, and buyers get off the sidelines and realize interest rates aren't going to plummet and there is always a cost associated with doing nothing.
That being said, we remain a loooooong way from the pendulum swinging to a buyer's market in most areas, so I don't see a major dip in prices, just a slight correction and cooling off of appreciation.
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Reed Rickenbach:

I see most current underwriting expecting the 4's by Q4 2023 or Q1 2024. Haven't seen anyone expecting rates back in the 2's or 3's any time soon.. that would be a crazy assumption.
However I'm sure a lot of underwriting in 2020 - 2022 included rates staying historically low.
4s in Q4 is getting further away. Fed is out here pushing 5.25-5 fed funds by end of Q1. To get to a 4ish % mortgage, that'd be a massive scale back in short times.

My financial guy is saying 2-3 more rate hikes.

.5, .25 then maybe another .25. If that happens in March, and May, don't see how we drop 2-4% by Q4 to get mortgage in the 4s. It's going to go up to mid 8s, before it drops to mid 4s.
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Jeff Copeland:

I was just reviewing my portfolio the other day and noticed a property I refinanced in 2018 was at 5.85%. How soon we forget!
Even if we see baseline rates (for owner occupants) in the 4's in the next year or two, that's still means 5's and 6's for investment properties.
This is the new normal, and I expect the market to crank back up in the Spring as seller's come to terms with the reality of rapidly increasingly supply, and buyers get off the sidelines and realize interest rates aren't going to plummet and there is always a cost associated with doing nothing.
That being said, we remain a loooooong way from the pendulum swinging to a buyer's market in most areas, so I don't see a major dip in prices, just a slight correction and cooling off of appreciation.
The reason the sideline people are wrong is just simply inventory. At this point, rates can do anything and whatever they want. Fundamentally, supply is low and remaining low.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
3y
Quote from @Troy P.:
I agree we probably won't see 3% for a while, but let's be real, every ~10 years there is some kind of "event" that triggers a recession of some form and sends the banking industry into panic-mode. Rates have been steadily going down for 40 years as home values steadily increase. If rates want to go up, home prices need to either stabilize or go down. Oh, and then there's that pesky inflation. It is definitely interesting to watch...

Rates went up for the 40 years prior to the downward trend as well. Home prices also continued to go up during that time.

You know what that tells me. Inflation happens whether we are in a rising interest rate environment.....or a falling interest rate environment.
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Reed Rickenbach
Real Estate Broker · Memphis, TN · Member since 2020 · 202 posts · 203 votes
3y
Quote from @V.G Jason:

Quote from @Reed Rickenbach:

I see most current underwriting expecting the 4's by Q4 2023 or Q1 2024. Haven't seen anyone expecting rates back in the 2's or 3's any time soon.. that would be a crazy assumption.
However I'm sure a lot of underwriting in 2020 - 2022 included rates staying historically low.
4s in Q4 is getting further away. Fed is out here pushing 5.25-5 fed funds by end of Q1. To get to a 4ish % mortgage, that'd be a massive scale back in short times.

My financial guy is saying 2-3 more rate hikes.

.5, .25 then maybe another .25. If that happens in March, and May, don't see how we drop 2-4% by Q4 to get mortgage in the 4s. It's going to go up to mid 8s, before it drops to mid 4s.

Fed funds rate pushing higher, lowering inflation, can decrease the 30-year mortgage rate pretty significantly. 30-year mortgage is more closely tied to inflation expectation than the Fed funds rate.. but no one really knows.
0 Reply
Troy P.
Investor · Baton Rouge, LA · Member since 2019 · 184 posts · 167 votes
3y
Quote from @Russell Brazil:

Quote from @Troy P.:
I agree we probably won't see 3% for a while, but let's be real, every ~10 years there is some kind of "event" that triggers a recession of some form and sends the banking industry into panic-mode. Rates have been steadily going down for 40 years as home values steadily increase. If rates want to go up, home prices need to either stabilize or go down. Oh, and then there's that pesky inflation. It is definitely interesting to watch...

Rates went up for the 40 years prior to the downward trend. Home prices also continued to go up during that time.
You know what that tells me. Inflation happens whether we are in a rising interest rate environment.....or a falling interest rate environment.

Sure, and I'm no Economics expert, but wouldn't we need to look at affordability? Average household income has only increased 16% in the last 30 years. 16 percent! During that same time, home prices have gone up 254%. 254 percent!! Maybe I'm not looking at something correctly, but it all seems pretty simple. Only the wealthy are able to buy homes. This was realized last year which is why the split between interest rates on primary vs investment was increase so much, per a lender I spoke to recently. Below is home values over time as well as household income over time, in today's dollars.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
3y
Quote from @Troy P.:

Quote from @Russell Brazil:

Quote from @Troy P.:
I agree we probably won't see 3% for a while, but let's be real, every ~10 years there is some kind of "event" that triggers a recession of some form and sends the banking industry into panic-mode. Rates have been steadily going down for 40 years as home values steadily increase. If rates want to go up, home prices need to either stabilize or go down. Oh, and then there's that pesky inflation. It is definitely interesting to watch...

Rates went up for the 40 years prior to the downward trend. Home prices also continued to go up during that time.
You know what that tells me. Inflation happens whether we are in a rising interest rate environment.....or a falling interest rate environment.

Sure, and I'm no Economics expert, but wouldn't we need to look at affordability? Average household income has only increased 16% in the last 30 years. 16 percent! During that same time, home prices have gone up 254%. 254 percent!! Maybe I'm not looking at something correctly, but it all seems pretty simple. Only the wealthy are able to buy homes. This was realized last year which is why the split between interest rates on primary vs investment was increase so much, per a lender I spoke to recently. Below is home values over time as well as household income over time, in today's dollars.
Go read an article on real estate affordability from the 1960s, 1970s, 1980s, 1990s, 2000s etc.
The narrative on unaffordable housing has been a multigenerational narrative. It is nothing new. Search these forums, not that long ago I posted articles from the 60s, 70s and 80s that you think could have been written yesterday. This one article below is from 1979.
Inflation doesnt care if housing is affordable.
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Russell Brazil:

Quote from @Troy P.:

Quote from @Russell Brazil:

Quote from @Troy P.:
I agree we probably won't see 3% for a while, but let's be real, every ~10 years there is some kind of "event" that triggers a recession of some form and sends the banking industry into panic-mode. Rates have been steadily going down for 40 years as home values steadily increase. If rates want to go up, home prices need to either stabilize or go down. Oh, and then there's that pesky inflation. It is definitely interesting to watch...

Rates went up for the 40 years prior to the downward trend. Home prices also continued to go up during that time.
You know what that tells me. Inflation happens whether we are in a rising interest rate environment.....or a falling interest rate environment.

Sure, and I'm no Economics expert, but wouldn't we need to look at affordability? Average household income has only increased 16% in the last 30 years. 16 percent! During that same time, home prices have gone up 254%. 254 percent!! Maybe I'm not looking at something correctly, but it all seems pretty simple. Only the wealthy are able to buy homes. This was realized last year which is why the split between interest rates on primary vs investment was increase so much, per a lender I spoke to recently. Below is home values over time as well as household income over time, in today's dollars.
Go read an article on real estate affordability from the 1960s, 1970s, 1980s, 1990s, 2000s etc.
The narrative on unaffordable housing has been a multigenerational narrative. It is nothing new. Search these forums, not that long ago I posted articles from the 60s, 70s and 80s that you think could have been written yesterday. This one article below is from 1979.
Inflation doesnt care if housing is affordable.

in bold, 100% correct. You'll always need it. You'll always figure out a way to pay for it.

we will be a renter's nation. And in cities where you could pay 20-30% net income on housing. You'll now be closer to 40-50%.
1 Reply
Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
3y
@Chris Seveney no argument here. @Russell Brazil nailed it. Rates can go primarily one direction for decades.

Regarding the government being "Addicted" to low rates, the government only has limited control over rates. The 10 year rates that mortgages are based on expectations of international and US investors. Investor demands for interest interest rates are based on expected inflation. The government can print money (increase the money supply) but that itself leads to more inflation.

None of this matters to us smaller SFH investors. If the deal works with today's 30 year financing you buy. If it doesn't you don't buy. The phenomenal risk it to commercial buyers and especially syndicators that are counting on sell cap rates 3-5 years out.

2 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Chris Seveney:

I am sure many of you will disagree with me, but I am seeing a lot of posts talk about “today’s high interest rates”
I believe there are many of us who view today’s rates to be more of the norm versus the outlier.
If you look at the current data, interest rates are not going to be dropping significantly in the near future. Could interest rates get back potentially into the 4’s, yes.
But I believe the days of the federal rate being at 0% and mortgage interest rates in the 2’s and low 3’s is not something people should bank on in the near future.
It’s not only goes for acquiring property, but for those who have invested in syndications where the exit was a refinance at a low rate.
Let the fireworks begin
100% agree with you, also it seems 3-4% inflation seems to be sticky which makes 5% rate as new normal anyway
0 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Russell Brazil:

Quote from @Troy P.:

Quote from @Russell Brazil:

Quote from @Troy P.:
I agree we probably won't see 3% for a while, but let's be real, every ~10 years there is some kind of "event" that triggers a recession of some form and sends the banking industry into panic-mode. Rates have been steadily going down for 40 years as home values steadily increase. If rates want to go up, home prices need to either stabilize or go down. Oh, and then there's that pesky inflation. It is definitely interesting to watch...

Rates went up for the 40 years prior to the downward trend. Home prices also continued to go up during that time.
You know what that tells me. Inflation happens whether we are in a rising interest rate environment.....or a falling interest rate environment.

Sure, and I'm no Economics expert, but wouldn't we need to look at affordability? Average household income has only increased 16% in the last 30 years. 16 percent! During that same time, home prices have gone up 254%. 254 percent!! Maybe I'm not looking at something correctly, but it all seems pretty simple. Only the wealthy are able to buy homes. This was realized last year which is why the split between interest rates on primary vs investment was increase so much, per a lender I spoke to recently. Below is home values over time as well as household income over time, in today's dollars.
Go read an article on real estate affordability from the 1960s, 1970s, 1980s, 1990s, 2000s etc.
The narrative on unaffordable housing has been a multigenerational narrative. It is nothing new. Search these forums, not that long ago I posted articles from the 60s, 70s and 80s that you think could have been written yesterday. This one article below is from 1979.
Inflation doesnt care if housing is affordable.

yes and in the whole universe, housing in US is still the most affordable compare to any other, daily mortgage payment in midwest is only twenty dollar, come on man, it's too affordable LOL
0 Reply
Troy P.
Investor · Baton Rouge, LA · Member since 2019 · 184 posts · 167 votes
3y
Quote from @Russell Brazil:

Quote from @Troy P.:

Quote from @Russell Brazil:

Quote from @Troy P.:
I agree we probably won't see 3% for a while, but let's be real, every ~10 years there is some kind of "event" that triggers a recession of some form and sends the banking industry into panic-mode. Rates have been steadily going down for 40 years as home values steadily increase. If rates want to go up, home prices need to either stabilize or go down. Oh, and then there's that pesky inflation. It is definitely interesting to watch...

Rates went up for the 40 years prior to the downward trend. Home prices also continued to go up during that time.
You know what that tells me. Inflation happens whether we are in a rising interest rate environment.....or a falling interest rate environment.

Sure, and I'm no Economics expert, but wouldn't we need to look at affordability? Average household income has only increased 16% in the last 30 years. 16 percent! During that same time, home prices have gone up 254%. 254 percent!! Maybe I'm not looking at something correctly, but it all seems pretty simple. Only the wealthy are able to buy homes. This was realized last year which is why the split between interest rates on primary vs investment was increase so much, per a lender I spoke to recently. Below is home values over time as well as household income over time, in today's dollars.
Go read an article on real estate affordability from the 1960s, 1970s, 1980s, 1990s, 2000s etc.
The narrative on unaffordable housing has been a multigenerational narrative. It is nothing new. Search these forums, not that long ago I posted articles from the 60s, 70s and 80s that you think could have been written yesterday. This one article below is from 1979.
Inflation doesnt care if housing is affordable.

Thanks for the info, I'll certainly give this a read.
0 Reply
Troy P.
Investor · Baton Rouge, LA · Member since 2019 · 184 posts · 167 votes
3y
Quote from @Carlos Ptriawan:

Quote from @Russell Brazil:

Quote from @Troy P.:

yes and in the whole universe, housing in US is still the most affordable compare to any other, daily mortgage payment in midwest is only twenty dollar, come on man, it's too affordable LOL

I see LOTS of affordable housing in my area as well. The problem is, people don't want to live in that area. But even worse, investors don't want to spend money in that area either knowing appreciation is non-existent, no decent tenants to attract, crime is on the rise, etc. The government tries to entice you by waving tax benefits in front of you, but it only works to certain extent. I bought a nice rental property in 2022 with a daily payment of $18. A year later, that is now unheard of for any half-decent area.
2 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Troy P.:

Completely untrue. I know a lot of folks that just bought or will be buying soon and 0% of them are 'wealthy'.....just normal people.
Now you might be correct if you said that only wealthy people can buy homes in SoCal on the beach, or on Staten Island.....but in general, naw, anyone that really wants to can buy houses.
4 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Chris Seveney:

I believe there are many of us who view today’s rates to be more of the norm versus the outlier.
Exactly! I consider them low today. But in reality do interest rates really matter much at all? I have never even considered rates when buying, except how they impact my ability to make the payment...and then there are other ways to fix that issue. It's all relative really. More or less down, higher or lower rates, smarter tax strategies, etc, etc...
0 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Troy P.:

Quote from @Carlos Ptriawan:

Quote from @Russell Brazil:

Quote from @Troy P.:

yes and in the whole universe, housing in US is still the most affordable compare to any other, daily mortgage payment in midwest is only twenty dollar, come on man, it's too affordable LOL

I see LOTS of affordable housing in my area as well. The problem is, people don't want to live in that area. But even worse, investors don't want to spend money in that area either knowing appreciation is non-existent, no decent tenants to attract, crime is on the rise, etc. The government tries to entice you by waving tax benefits in front of you, but it only works to certain extent. I bought a nice rental property in 2022 with a daily payment of $18. A year later, that is now unheard of for any half-decent area.

precisely, so it's not an affordability question.
0 Reply
Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
3y
Many are underestimating the impact of higher interest rates across personal, commercial, and government debt for an extended period. Imagine the economic wreckage if all debt were to reprice to current rates, which will happen over time (7 years in residential, 5 years for US Treasuries, and fewer years for commercial debt). This is not the 1970s debt levels...not even close.
6 Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
3y
@V.G Jason
i think you're half right - i do think the amount of income going to housing is going to continue to go up. this is a good point.
but, i just don't see the US "becoming a renter nation." the homeownership rate is at ~65-66%, and pretty static. wouldn't a "renter nation" be where >50% of households rent??
open to your / other perspectives though
0 Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
3y
@Chris Seveney
good post and I agree.
on my deals - if it works at the rate I'm getting, and that rate is fixed, I proceed. if I can refinance in 1 year, 10 years - great. if i can't... also fine.
1 Reply

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