Jay's Notes: While values will probably get their next spurt as the economic recovery bring owner-occupied sales back to normal, high cash flows will only be for investors that take advantage of today's artificially low interest rates. As rates go back to an historical norm near 8%, homes will go back to break-even territory. As soon as the Fed stops its 'Quantitative Easing' bond-buying program, rates will start their inevitable march back up. Investors that want to use today's ultra-low interest rates are living on , pardon the pun, borrowed time.
While mortgage rates have been
rising the last few months, they are still historically low compared to
the trend over the last four decades, Freddie Mac says in a blog post.
But rates as low as they were in November 2012 — when the 30-year
fixed-rate mortgage reached an all-time low of 3.31 percent — aren’t
likely to return any time soon, the mortgage giant says. Still, Freddie
assures borrowers that the all-time record high of 18.63 percent reached
in October 1981 isn’t on the horizon either. (At 18.63 percent, monthly
mortgage payments on a $200,000 loan would be $3,117, compared to $992 a
month at today’s 4.32 percent average.)
With mortgage rates at 4.32 percent, 123 of the 157 metros that
Freddie Mac tracks remain very affordable to households earning the
median income. In order for affordability to be hampered in the majority
of markets, interest rates would have to reach 7 percent, according to
Freddie Mac.
“Stubbornly high unemployment over the last several years coupled
with stagnant income growth exacerbates declining affordability in a
rising interest rate environment,” according to Freddie's blog post.
“More jobs and income growth would help blunt the effects of higher
interest rates and make buying a home more accessible. While jobs and
income have shown some improvement in recent months, they continue to be
challenged.”
Mortgage Rates Through the Years
Here’s an overview of mortgage rates in the past four decades, as
well as the approximate payment on a $200,000 mortgage and how it
changes with the rise and fall of rates, according to Freddie Mac.
-
1970s
Average 30-year fixed-rate mortgage: 8.86%
Approximate payment on a $200,000 mortgage: $1,589
-
1980s
Average 30-year fixed-rate mortgage: 12.70%
Approximate payment on a $200,000 mortgage: $2,166
-
1990s
Average 30-year fixed-rate mortgage: 8.12%
Approximate payment on a $200,000 mortgage: $1,484
-
2000s
Average 30-year fixed-rate mortgage: 6.29%
Approximate payment on a $200,000 mortgage: $1,237
-
2014
Average 30-year fixed-rate mortgage: 4.36%
Approximate payment on a $200,000 mortgage: $997
Source: “Mortgage Rates: From Dirt Cheap, to Cheap,” Freddie Mac (March 24, 2014)