Interest rates are not high

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Interest rates are not high

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

I keep seeing a lot of posts with people noting “interest rates are high”.

Just want to say, no they are not. I don’t need to post the charts here as a simple google search will note this. Last decade interest rates have been super low

If anything is “high” it would be home prices as those in June were all time highs

I would also not plan on rates going back down to 3’s anytime soon (if ever) so investors should be modeling their returns more cautiously and based on what’s in front of them.

Just my vent for the day.

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Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
3y

I agree Chris that interest rates are not "high" when looking at a historical chart like what @Randall Alan posted.

But interest rates are high right now compared to the price of real estate. The median price for a single family home in the US is around $370k right now. Thats about 3% higher than 1 year ago today.

Rough numbers, rounded for simplicity:

-In Nov 2021 you could buy a house for $360k and get a 30 year fixed loan at 3.25%. This would come with a P&I payment of $1,566.74 per month

-In Nov 2022 you can buy a house for $370k and get a 30 year fixed loan at 6.25%. This would come with a P&I payment of $2,278.15 per month

So yes, rates are not historically high. But payments are. And isn't payment what really matters?

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Marcus Auerbach:

    Interestingly, the issue going forward will be more with sellers, than buyers. Because they have a 3% rate and now buying a more expensive home with a higher rate is not super appealing!

    But we have seen rates come down. A recent survey from Point shows that most buyer's would re-engage at rates in 5% range, some say 4%. But very few would require 3%, which was a historic anomaly anyways


     yes, the impact for that 3% rate is huge, from the job market, relocation, mobility, etc.

    during the QE era (2010-2020) it really gives us a crazy advantage as real estate investors, with just two houses in the same geographical era, I can pay off 30YFRM within 10 years as IRR for two houses is 12%. So for us who purchased RE during the 2009-2013 bottom, it has been a nice wild ride.

    For the next decade, it really needs a different way to handle the situation, either using a 40 Y loan (and adding to principal) separately, using lower leverage maybe 1 to 2 ; or just investing at CD or private REIT/notes rather than direct ownership,etc.

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  • Walter Correia
    Lender · Charlotte, NC · Member since 2015 · 124 posts · 22 votes
    3y

    @Chris Seveney

    Couldn’t agree more. Equity In some places are still high. What’s higher then rates is greed IMO.

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  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    3y

    Interest rates are high for the property prices, which is why prices are down about 10% since interest rates were lower. 

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

    @Dan Heuschele

    We are note investors and have over 200 assets in our portfolio and only 7 of them are rates under 7%.

    If the mortgage market is 16 trillion and 15% are above 5% there is still 2.4 trillion in real estate above 5%. Remember there are ALOT of people in this country with questionable credit. Not everyone has 800 credit scores.


     However, the rates on those people have still risen.  Whether you qualify for conventional loan or do not qualify for conventional loan, your existing loan base is at lower rate than the current rates available to you (assuming loan type has not changed).  So current rates are high.  They are as high or higher than what anyone should already have on their existing loans.

    My point is the fact that 20 years ago loans were much higher does not change that the current rates are high as no one with any intelligence still has a loan from 20 years ago at that interest rate.

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