The Power of Low Interest Rates...

Not since the early 1990’s has Sacramento experienced the Buyers Market we’re experiencing today. With a wide selection of homes in all price ranges, today’s home buyer can buy more home for less indebted dollar than ever before. 
Shown below is a graph of 30 year mortgage rates from 1976-2003.                                                                     




While a 27 year look at 30 year mortgage rates reveals a down trending rate profile, when we look at a 50 year graph we can see that rates are dependent on several factors affecting the US economy. One of the key factors is inflation. During the 70's and 80's inflation spiked in the US forcing mortgage rates to nearly 18% as shown on the graph below. While inflation has been low, and to the advantage of the real estate buyer during the last 10 year period, we are now beginning to enter a period of  inflationary concern. Will rates remain low if inflation becomes a key factor in the US economy? The graph below shows a 23 year period of mortgage rates that never dipped below 7% (1970-1993). It took 23 years for the full effects of a high inflationary environment to be washed out of our economy. Consider that in March of 2000 interest rates were over 8%.


What makes this market unique is that mortgage rates have fallen to historic lows. In 1990 mortgage rates were approaching 10% or nearly twice what they are today. Where rates are going today is unknown, but just rising to the historic average of 8% would  mean that a $233,000 property with 20% down and payment of  $1364 per month would have a higher payment than an equivalent $300,000 home purchased using today's rates.

Low mortgage rates allow buyers to maximize their purchasing power, dampen the effect of any future price declines, and allows the mortgage holder to settle into a mortgage payment that's as low as they've ever been. And, if a 50 year history is any guide, we can be assured that these rates will return to the norm.

Mortgage Rates                          Sales Price          P & I Payments with 20% Down

5.5%                                             $300,000                                    $1362.69

6%                                                $285,000                                    $1366.98

6.5%                                             $270,000                                    $1365.17

7%                                                $256,000                                    $1362.54

7.5%                                             $244,000                                     $1364.87

8%                                                $233,000                                     $1364.80    It's very important for buyer's to pre-qualify for loans prior to making an offer. While we're experiencing a buyer's market, mortgage loan requirements are becoming more restrictive. Qualifying in advance insures that a buyer can make  offers that fit within their ability to secure a loan at the lowest possible rate.   What's Happening with Rates Today?     While the Federal Reserve has actively been cutting interest rates, the above graph shows that mortgage rates, while falling initially, have begun to rise. Fed Fund rates have fallen from 4.25 % in December to 3% today. The average 30 year mortgage has risen from a low of approximately 5.25% in January to today's rate of about 6.25%. It's becoming clear that low rates today do not mean low rates tomorrow. Interest rates matter! If you are serious about buying a home, I can help. Let's set up a plan, get you pre-qualified, and find a home that maximizes on the purchasing power of low mortgage rates. Don't delay. Rates may be low today, and it makes for one of the greatest real estate buying opportunities we've seen, but there's NO guarantee that they'll remain low for long. I'm ready to help and there's plenty of properties from which to choose. Call me today!