Interest rates are not going back to 3%

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Interest rates are not going back to 3%

Chris SeveneyBusiness Member
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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
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!

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  • Troy P.
    Investor · Baton Rouge, LA · Member since 2019 · 184 posts · 167 votes
    3y
    Quote from @Bruce Woodruff:
    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.


    Yes, I should have phrased that better.  Anyone who wants a decent investment in a decent area and not wanting to dodge bullets every night is now facing a tough time making that "dream" happen due to a combination of prices, rates, and inflation going wild.
    1Reply
  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    @Mike Dymski

    100%.  Do you have an opinion on whether the government will be forced into lowering rates.

    This is the problem I have with people who want to stay out of anything political and focus entirely on economics.  The structural problems in our financial system are (in my opinion) going to change the way normal people live their lives one way or the other.  It will be the reaction of politicians, the Fed, bureaucrats to economic forces more then economic forces themselves that will be the deciding factor as to if real estate is a good investment or not.  

    3Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    3y
    Quote from @Troy P.:
    I agree completely, It is tough, but there have been worse times by far. Anyone that really wants to and can think outside the box a little can still find the right property and do a killer deal.... IMHO...
    2Reply
  • Zalman Ives
    Real Estate Agent · Brooklyn, NY · Member since 2022 · 55 posts · 28 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


    Wow, Chris! I was not even thinking they would return to the 4's, never mind 2's & 3's, and certainly not in 2023 like someone else replied. But I was hoping for low 5's by the end of the year and a little more accommodating market in unconventional loans for us young guys who can't show enough income (I'm getting quotes at 11.5-14.5%, and exorbitant closing fee). As someone else mentioned, the fed is making that less likely with every rate hike.

    1Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y
    Quote from @Nicholas L.:

    @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

    I think you're going to see this tighten. It's not going to inverse overnight, but I think every ~3 years we'll see it tighten 2-4%. By the end of this decade, pretty sure it'll be sub 60%. Owning a house will be a novelty, you'll see a lot of young couples share houses with other young couples as renters. I don't think affordability will adjust itself for the new generations. It's just a new way of life.

    It's why I think if you buy that's not intrinsic today, that's perfectly fine. There's X amount of land that's able to build a house, it's unlikely a new build will be cheaper, and it's likely demand to live there is plentiful. Just hang tight for 1-3 years, maybe longer. If houses do not come down in prices, rent's will increase even more so. If houses do come down in prices significantly, then if you're positioned well you'd buy more. I think the investors that will go into houses now are not the one's we use to see, it's going to be people like me that were more equity driven. Now I believe yields in physical property>>>>equities. Before give me hassle free 8% over active investing 5-15% with headache after headache. I think equities sit sub 7% for the next 4-15 years, and real estate stays double digits.
    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    3y
    Quote from @Eric Bilderback:

    @Mike Dymski

    100%.  Do you have an opinion on whether the government will be forced into lowering rates.

    This is the problem I have with people who want to stay out of anything political and focus entirely on economics.  The structural problems in our financial system are (in my opinion) going to change the way normal people live their lives one way or the other.  It will be the reaction of politicians, the Fed, bureaucrats to economic forces more then economic forces themselves that will be the deciding factor as to if real estate is a good investment or not.  

    I agree.  Our economic system is not capitalism, it's debtism...or a combo of both...not being provocative or complaining...is what it is.  Someone posted the interest rate trend chart above.  That does not illustrate that current rates are "normal", it illustrates that our economic growth for forty years has been driven by more and more leverage and lower and lower rates.  The charts below do not move to the upper right corner due to time...they move due to a material change in government and economic policy and everyone's debt levels (personal, corporate, government). 

    Government debt is 120% of GDP...back in the 70s it was 30%.  I don't know enough to know how sustainable that is at current rates but know damn sure that it makes the 1970s and the rest of the interest rate trend chart meaningless from a "normal" standpoint.

    I think it's very clear what the Fed is doing and will keep doing.  They are going to keep rates elevated, continue to liquidate their massive balance sheet for as long as they can, and try to vacuum up the massive excessive stimulus from the economy.  Low unemployment and a housing market that is not crashing will allow them to continue as long as they can get away with it.  The government increased the money supply by a whopping 7 trillion or 40%; so, they have a long way to go.

    1Reply
  • Chris John
    Member since 2020 · 671 posts · 937 votes
    3y

    @Mike Dymski

    I've heard over and over that the stimulus money wasn't going to cause inflation.  Then, when by total coincidence, when we did have inflation, I was assured that it wasn't because of the stimulus.  Are you intimating that I was misled?  If so, I'm sure it was accidental...  haha.

    1Reply
  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ 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

    I heard somewhere along the way that if rates get too high it balloons the natioanl debt so it won't be allowed. I don't see how that is an issue since the government never pays it debts anyway, it simply prints more money.
    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    OP
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Mike Hern

    But the existing debt is already fixed interest rate based on prior treasury bills - so new deficits will be at todays to bill rates but prior deficit will be old rates till those mature and they need to obtain new debt

    It’s not like all $30T of debt is on a variable rate.

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  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    3y
    Quote from @Chris Seveney:

    @Mike Hern

    But the existing debt is already fixed interest rate based on prior treasury bills - so new deficits will be at todays to bill rates but prior deficit will be old rates till those mature and they need to obtain new debt

    It’s not like all $30T of debt is on a variable rate.

    The way I heard it is the government would call the treasuries due and then allow them to be sold at a higher rate of interest. The government has the gold and makes the rules. They could add a surcharge or tax to incentivize dumping the old treasuries. I've been around for awhile ( I remember John Kennedy ;-) and a lot of things that were to never happen, happened.


    0Reply
  • John M.
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes
    3y

    Enjoy your 2.5% home mortgage.  You won't likely see that rate again.  Statistically speaking rates don't adjust downward until about 11 months after their high.  The fed is calling for a few more hikes this year so we have a way to go.  Personally I don't see it leveling off for 2 years.  Corporations overshot their price increases last year and they're going to have to make some adjustments as demand slows.  Consumers still have money but it is starting to dwindle.  Maybe we will see 40 year mortgages at some point?   Crazy Times!  

    1Reply
  • Gary L Wallman
    Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 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


     Here's the problem as I see it. The United States is the biggest debtor in the world. The current annual interest payments for the US exceeds 213 billion dollars and growing. This amount is more than the military budgets of of every other nation in the world, except China at 270 billion dollars.

    As this debt rolls over into higher interest debt, that number will soar. Further, as the world's biggest debtor, inflation is our government's friend. They get to pay back their (our) debt with cheaper dollars.

    Our government has no desire to reduce spending because that's how our (sic) representatives buy votes.

    My bottom line? Interest rate increases will moderate and then trend downwards because there is no fiscal responsibility in D.C.

    Gary

    2Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    3y
    Quote from @Bruce Woodruff:
    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.


     This weekend I had a wholesaler send me 5 homes in Cleveland.  I believe only one was above $45K.  All met the 1% rule.  Being a wholesaler offering, they required cash or hard money to purchase these homes, but how much would equivalent traditionally financed properties go for?

    I have stated it before, the nation does not have a severe housing crisis.  Cartain areas do.  There are other areas were fine houses go unoccupied until they become dilapidated.  

    Also with high LTV financing, historically low interest rates, education opportunities provided by sites like Bigger Pockets, in some way it has never been easier to purchase. I used to do primarily BRRRRs and those properties were purchased and my full investment was extracted. I purchased cash flowing properties without trapping any investment in the property. In effect, I purchased cash flowing properties for no money (but a fair amount of work/effort). There are a lot of opportunities for the properly educated RE purchaser to be able to acquire properties with a small amount of money. It definitely does not require being rich. I know of an RE investing couple that never had income above $50K (for the couple) that was able to acquire $4M in RE. Educate on RE investment options. Financing options like Subject to, NACA, FHA, OPM, etc. Purchase philosophies like BRRRR, flipping, wholesaling. Non traditional renting options like rent by room, STR, MTR. Passive REI options like syndications. Because of the education possibilities, I suspect this is one of the easier eras for low income RE investors.

    3Reply
  • Kenny SimpsonBusiness Member
    Lender · San Diego, CA · Member since 2022 · 137 posts · 96 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, if rates do get back to 2's or 3's that means there is something BAD going on with the economy.  Rates landing in the 4's is more realistic.  

    [email protected]619-302-2020
    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    @V.G Jason

    what you're saying is that you envision something like 5-10M homeowners, net, becoming renters in the next 5-10 years... because that's the only way the rate drops below 60%.  but i just don't see that happening... because the increase in interest rates is not affecting owners who locked in low rates before the jumps, even if it makes it much harder to buy now.  if you're right, doesn't the the homeownership rate just stay where it is?

    0Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    @Dan H.

    "There are other areas were fine houses go unoccupied until they become dilapidated."

    EXACTLY.  Every week here in my market I come across perfectly decent houses in perfectly decent neighborhoods, where the rehab cost is greater than the ARV.  It's tough for an investor to do anything with that.

    but, I do think when we say housing crisis - we use it as a shorthand for a shortage in desirable areas.  I agree that there is a surplus in many other areas.  but the homebuilders seem to continue to be OK.  all the new builds in my area are 2X-5X the median price, and they're not stopping...

    0Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    What is shocking is the amount of people holding off on buying because of the rates, new investors were spoiled by the 2-3% rates and will most likely never buy until they see that again. 

    2Reply
  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    3y

    It's interesting to see how the Real Estate market has responded to these changes. Home prices have skyrocketed in recent years, even as interest rates remain low, due to incredibly high demand. The St Louis Fed chart also illustrates that mortgage rates are not all that far off from where they were two decades ago when I purchased my house. It just goes to show how low interest rates can create a perfect storm of economic opportunity. Real Estate investors are jumping at the chance to snap up properties, taking advantage of this incredibly favorable environment. Despite rising prices and increasing competition, Real Estate remains one of the best bets for long-term wealth accumulation. It's not quite as easy as it was when I bought my house twenty years ago, but with smart strategies and a little luck, Real Estate should remain one of the safest investments for decades to come.

    [email protected]832-889-5607
    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    3y
    Quote from @Eliott Elias:

    What is shocking is the amount of people holding off on buying because of the rates, new investors were spoiled by the 2-3% rates and will most likely never buy until they see that again. 


    Good riddance to them. There were too many rookies screwing up the game anyway.

    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    3y
    Quote from @Dan H.:
    Agree. This has truly become everyman's game!
    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ 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 remember being thrilled the 2002 OO rate of 6.5% was so much lower than my 7.25% OO rate of 1998.

    I also remember how houses only costed 4x my cubicle salary.  Denver (non-hood Aurora)  $136k. 

    Super low rates equals higher and higher prices.  While we wish for super low rates, our kids and grandkids generations will watch future homeownership dreams evaporate. 

    1Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y
    Quote from @Nicholas L.:

    @V.G Jason

    what you're saying is that you envision something like 5-10M homeowners, net, becoming renters in the next 5-10 years... because that's the only way the rate drops below 60%.  but i just don't see that happening... because the increase in interest rates is not affecting owners who locked in low rates before the jumps, even if it makes it much harder to buy now.  if you're right, doesn't the the homeownership rate just stay where it is?

    You're using current population. I'm assuming we're growing, and in growing metro areas you'll see the same amount of homes owned but by less individuals. That's my bet.

    And I don't know the exact number, but let's say 50% of homeowners refi or bought during the lowest rates. We can both agree that number holding will never go up, and only COULD go down. How much? I don't know. I think first few years minimal but we can't assume divorce, health, employment, external factors that force a sale. It will only go down.

    Combine those two and I think we get there. In the larger, more populated metro areas it'll be faster.
    0Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y
    Quote from @Kenny Simpson:
    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, if rates do get back to 2's or 3's that means there is something BAD going on with the economy.  Rates landing in the 4's is more realistic.  

    If rates go there, we'll be entering hyperinflation. These house prices will multiply.

    The fundamental of house prices is lot + build in your area. It's too regional, too specific to go for a more of a blanket statement. But if a lot in a good part of Houston costs 400k and it's $200/sq ft and you want a 2k house. You're paying $800k before other nonsense. If a similar build is $750k, it really can't price less. And as these lots disappear, the price goes higher.

    People worrying about rates are worrying about year 1-2 income. If you lock in a "high" rate, you'll be intrinsic soon. Year 1-3 may be bumpy. 
    0Reply
  • Brian Ellis
    Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ 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


    With the recent jobs report and inflation data coming out, we're already seeing rates rise at a rapid pace over the past week. I can only see them going up even more throughout 2023.

    Inflation isn't going anywhere anytime soon. FEDs should have raised rates in 2018. 

    Its like that saying, you walk 10 miles into the woods. It takes 10 miles to get back out.

    In my opinion we're in for a crappy real estate time as an investor. The only thing keeping values propped up is the lack of inventory (at least in my area). 

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    @V.G Jason

    it's more than 50%:

    https://www.redfin.com/news/ho...

    and yes, of course some homeowners will sell their houses anyway and become renters.  but, lots will buy.  and i do agree with what you're saying about the challenges people face.  but you're saying we're going to lose >5M homeowners, net.  i just don't see that happening.

    0Reply
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