It’s the end of 2019 and I have been reflecting on what has been a year of forecast revisions for home sales and mortgage volume. What began as an expectation for rising rates quickly evolved into the opposite as concerns about a global economic slowdown that drove bond yields lower as investors looked to safer investment options.
The question is how long this low interest rate environment might last. Looking at 2020, my message for prospective homebuyers and realtors is twofold. First, history can repeat itself. Second, is a quote from the Roman philosopher Seneca. “Luck is what happens when preparation meets opportunity.”
The graph below shows the history of the 30-year fixed rate mortgage going back to the early 1970’s. As I look at this and consider the current near historic lows in interest rates, I will begin 2020 with one piece of advice to anyone considering a home purchase – don’t look this gift horse in the mouth.
My first home purchase came in the 80’s with an interest rate of 12.5%. Yes, those rates were real. No one ever predicted this prolonged period of rates hovering in the low single digits.
What does this mean for potential buyers? Consider this; the difference in cost on a $300,000 loan of only 2% is significant. For example, the difference between, say, a 3.5% mortgage and a 5.5% one is about $355 per month. That’s over $40,000 in just a decade.
One thing is clear – this period of low rates is a unique historical ability to lock in. You will be taking advantage of this perfect storm where home demand is expected to remain strong for years ahead as millennials continue to increase housing demand. It’s also, perhaps, a once in a lifetime opportunity to capture the near lowest possible interest rate and payments that may make home ownership a valuable opportunistic investment decision for this new year.
A picture is worth a thousand words and this snapshot of rates tells me one thing – there is a lot more room to rise than for rates to decline. 2020 should be the year for the American Homebuyer to lock in and own, if they are able to.
Clearly, decisions to rent or buy should consider job security, life decisions, and individual ability to be a homeowner. But for those that meet that test, the timing has never been better.
Here’s to a great year ahead for all.
David H. Stevens CMB, is the CEO of Mountain Lake Consulting, Inc. Dave is a 36-year veteran of the mortgage banking industry having served as the US Assistant Secretary of Housing and as CEO of the Mortgage Bankers Association..