Lessons From the Past

-1All markets including real estate markets go through cycles over time. As we look back, there are some lessons from history that are worth reviewing. How many times do we look back and see our missed opportunities?

Remember The Early 1980s – Disco was the rage and mortgage rates were in the high teens. What were the factors that caused such high rates and could that happen again? The economy in the late 1970s was stalled and the Fed started printing money to boost the economy. That worked in the short-term but eventually led to inflation. The Fed then used increasing interest rates to slow the economy and keep inflation under control. Sound familiar? The fed is currently printing $85 billion each month to buy mortgage securities and bonds to keep financing rates like mortgages artificially low. But we cannot do that forever due to the budget ceiling and mounting national debts. Many economists predict that we are heading toward another round of inflation and the Fed will have no choice but to raise rates again. In addition, our whole mortgage system is broken and the math simply does not work. The FHA (Federal Housing Authority) is basically insolvent and askin g Congress for money. Freddie Mac and Fannie Mae are also underwater and there is pending legislation to completely restructure these entities. To make this system work, we must bring back the normal investors to buy the mortgage securities that support the whole system. The key factor is the rates of return. With mortgage rates artificially low, the investor appetite is low. But if mortgage rates rise, the investors will return. Big change is coming to mortgages – the only question is when?

We do not expect to see mortgage rates back in the teens but we do expect to see rates in the 6-8% range again in 2-4 years. That is a 100% drop in your purchasing power and may cost you hundreds of thousands of dollars over the life of a loan. Sellers that are waiting for the values to rise on their current home before moving are going to be shocked on the other end of their purchase. It is predictable that home prices will rise and mortgage financing will get more expensive. The Spanish philosopher George Santayana said, ”Those who cannot remember the past are doomed to repeat it!” We want to make sure that does not happen to you and your loved ones.
If you or someone you know are considering selling their property, our award-winning Advanced Property Marketing System is the most effective methodology to get the highest market value. Learn more about it at www.PetersenPartners.com

Posted in Home Ownership, RE News.

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