Real estate professionals monitor the current real estate market and the vital signs that cause the market to fluctuate. They accumulate information on the properties that are currently on the market and on the properties that have sold or been withdrawn from the market. They also keep a close watch on the current interest rates. This information is complied, dissected, mixed with the individual’s personal experience and with the experiences of other agents and brokers in their offices and then the assembled data is disseminated to current and potential customers and clients.
There are numerous reasons that the markets fluctuate and one of the most constant factors in the housing market is the interest rate. Over the last several years many individuals have used creative forms of financing to allow them to procure properties that would not have been obtainable using conventional financing. As the interest rate moves up, these individuals begin to feel the pressure on their budgets. To maintain some sense of security they either obtain a fixed rate on their mortgage, or sell their property and move into something more affordable.
Since interest rates are one of the causes for the fluctuations in our market, I decided to take a look back over the last couple of decades at the historical data on 30 year fixed rate mortgages. HSH Associates Financial Publishers, www.hsh.com , has been compiling data on interest rates for many years. The following calculations were obtaining by compiling a blended average of the monthly interest rates on a national average for both conforming and jumbo mortgages from 1983 through May of 2007 using historical data published by HSH Associates.
Year Blended monthly average
1983 13.36
1984 13.75
1985 12.31
1986 10.23
1987 10.27
1988 10.44
1989 10.44
1990 10.19
1991 9.35
1992 8.50
1993 7.40
1994 8.49
1995 8.18
1996 8.02
1997 7.76
1998 7.06
1999 7.54
2000 8.21
2001 7.16
2002 6.65
2003 5.97
2004 5.96
2005 6.00
2006 6.53
2007 6.34
Average rate for the 1983 to 1989 11.54
Average rate for the 1990’s 8.24
Average rate for the 2000 to 2007 6.60
Taxes, insurance and PMI are not included in the following calculations.
Using the 1983 to 1989 average, the monthly payment on a $200,000 thirty year fixed rate mortgage would be $1986.69.
Using the 1990-1999 average, the monthly payment on a $200,000 thirty year fixed rate mortgage would be $1501.13.
Using the 2000-May of 2007 average, the monthly payment on a $200,000 thirty year fixed rate mortgage would be $1277.32.
The difference in financing a $200,000 home in 1980’s and the 2000’s is $709.37 a month.
After reviewing this data, it can be easily deduced that we are currently at or near the best period of time in the last couple of decades to invest in real estate using affordable interest rates.
As with most books, articles and stories, the author has a point or a moral that they are endeavoring to relay when they put their pen to paper. The moral to this story is: Do not procrastinate on buying a home, investing in property or on obtaining a fixed rate of finance by waiting on a minute reduction in the interest rate. As everyone knows, history tends to repeat itself and in this case, a repeat in history would cause you to pay a lot more for a future mortgage than the one that you can obtain today.
