Will interest rates actually ever drop back below 3-4%?

Question

I feel like I'm hearing a lot of people say stuff like "don't worry about buying when rates are high because when they drop you can always refi to a lower rate". However, historically, rates aren't high. I don't think I'm alone in feeling like the past several years, rates were pushed artificially low.

So, what's the consensus on rates dropping back below 3-4%?  Is it a foregone conclusion to happen?  I don't necessarily think so, personally, but I'm really curious to hear some opinions if you're willing.

J. Mitchell Bernier · Answer

This has been a recent pet peeve of mine. Seeing people say "Date the rate" or dont worry you can refi at a lower rate in a couple of years. We have no idea that will happen and as most of us, including myself, didn't see rates going this high in the first place. Think people need to stay far away from anyone selling the idea that rates will for sure be lower in the near future.

Jay Thomas · Answer

Hey Chris!

Honestly, there is not definite answer to this. If you look at the history of interest rates 5% to 7% is actually  on the more normal side. I can't not say they will drop and if they do what they will drop to. I can say that there are ways to buy down interest points and buying smart. When  you notice a trend of the interest rates dropping paying attention so you can capitalize at that time.

Mike Dymski · Answer

Stagflation (high inflation, low economic growth) is here...and no one knows how long it will last.

The notion that current rates are "normal" ignores that current property values are not.  Inflation adjusted prices stayed flat for 40 years from 1970-2010...and then more than doubled since then.  Let me repeat...more than doubled.  Higher rates matter...a lot.

Whether we like it or not, higher prices (inflation) are the consequence of our decisions around things like drilling, tariffs, immigration, and war (yes, we are at war).  Globalization kept inflation low for over a decade...nationalism/isolationism does the opposite.

Mike Dymski · Answer

Regarding you first question, I could guess and debate but no one really cares or will be influenced by one person's speculation (but I am inclined to be in your camp that rates are not going back down to low levels any time soon based on our broad inflationary policies mentioned above).  We are still sending stimulus.  The states are sending checks now, student loan forgiveness is massive...another $500 billion that impacts 37 million people, and the doubling of the child tax credit will surface again.

Inflation was caused by massive stimulus, supply chain disruptions, going to war, not enough drilling, limited immigration for 1-2 years, 2-4 million extra early retirees, 2-3 million extra people on disability due to long covid, and 1 million more people passed away (some of which were workers).  Tell the southern governors to send the buses to my employer because we need workers to grow.  At this point, what caused it may not matter...and we're not doing much to fix it other than mashing the interest rate button; so, all we can do is adapt and pivot as best we can.

Jeff Tumbarello · Answer

doubtful, They have printed themselves in a corner. The dollar's current strength is a global wrecking ball.

Chris John · Answer

@Mike Dymski

That post was gold!  Thank you for that.  Makes a ton of sense.  The way you laid out inflation was revelatory for me.  Sometimes you just need to hear something phrased a certain way, I guess (and that absolutely did it for me, so thank you again!)

"I am building a hybrid apartment/hotel for under $200k all-in cost per unit in a submarket where apartments sell for close to $500k per unit.  We'll see if I can execute."  That sounds amazing.  It's funny because I've told my wife that I feel like a vulture in the sense that the properties I own have existed and housed people before me and will continue after me, I've just written my name on them for a while.  Obviously, we clean them up, but...  However, there must be a great deal of satisfaction with being on the creation/building side of things.  I'm sure you'll execute, but even if you miss by 50%, that's still some profit!  haha.

Chris John · Answer

@Mike Dymski

Good stuff.  I couldn't agree more with "current rates being "normal" but property values are not", but where does that leave us?  Lower prices at current rates, current prices at lower rates, current prices with current rates (with nothing actually selling)?

I'm also curious about "Globalization kept inflation low for over a decade...nationalism/isolationism does the opposite."  I"ll address this as delicately as I can for obvious reasons, but I feel like Trump is typically characterized as a nationalist while Biden is typically characterized as a globalist, but we've had inflation under Biden's administration (I do want to point out that Bush 2, Obama, Trump, and Biden pumped trillions into the economy, so hopefully we can ignore politics in general).  Can I ask you what you think specifically caused inflation?  It seems like nobody knows (and I sure don't)!  haha.

Will interest rates actually ever drop back below 3-4%?

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