Interest rates, interest rates, interest rates... what's going to happen with interest rates?
We have seen a lot of volatility in November with rates, as they have bounced in a wide range of about 75 basis points. It's been bumpy, for sure, which leads to the question... how much longer can we have rates in the 4's?I have been ringing the inflation bell for the past year, and in the name of disclosure, I felt we were headed higher when rates were in the low 5's. And while commodity prices like those for corn and oil have soared, interest rates haven't followed suit. So I've been wrong before.
But the chart above shows why the low rate party of the past two years has to come to an end, sooner or later.
The bottom line is that today's economy is growing, albeit slowly. The rates my clients are able to get today are rates from the 1950s... but the decade ahead is likely going to be a decade of higher than normal inflation, increased volatility, higher unemployment and more uncertainty. In other words, when you can lock in a good deal, you should take it.
GDP in the second quarter increased by just over 3%, after falling 4% in the second quarter of 2009. If you look at the chart above, it's a bounceback. Now most of that growth came from government spending, but isn't government spending by its very nature inflationary?
I have said for a while that rates in the low 5's would actually do more to help our market than rates in the low 4's, because when we see rates really start to lift it will cause an army of fence sitters to finally take action. And there are many, many buyers on the fence these days.
I also think the start of 2011 is going to be better than most pundits think. Granted, we're not going back to the boom-boom days of the early 2000's any time soon, but we'll certainly see a market better than the one we've been dealing with during the second half of 2010.
People are not necessarily feeling better about the economy, but feelings change only after perceptions change. I have been saying to my clients for months that "they don't offer rates in the 4's because everything is perfect." There has to be some step of faith to take advantage of these rates, but I believe that most buyers who take action today are going to be well positioned for years to come.
