Thursday, May 28, 2009


For the past six months, mortgage interest rates have essentially been "on sale".

They have been on sale because the federal government is subsidizing artificially low rates by purchasing huge amounts of debt on the open market, which (without large purchases by the Federal Reserve) would otherwise be priced higher to attract skittish investors.

I have been preaching this for months, and I am working very hard right now for my clients because I believe the overall attractiveness of buying into this market is based in large part on the exceptionally low interest rate environment that we are in.

Understanding markets is not easy, and none of us can guarantee what will happen tomorrow.

But if you don't think 30-year rates in the low 5's are temporary and an aberration, talk to your parents, aunts and uncles about the rates they have paid on their home loans. When I was first licensed, in 1994, I began my real estate career by cold calling homeowners promoting interest rates at 8.75% - because back then rates under 9% were a big deal.

When rates rise, you lose purchasing power. In fact, a one percent jump in rates is going to cost you about 10% of your purchase power, and it's not like you can wait around for rates to cycle lower. Once the government stops buying mortgage debt, we're headed higher.

I don't know how much more clear I can make it.