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