...don't lose sight of the forest for the trees.
Day-to-day volatility grabs headlines. Money.com recently fielded in inquiry from a reader regarding the pros and cons of buying now in a buyer’s market vs. waiting for rates to drop. Another story reported on the fact that mortgage rates ticked down a bit over the past week, down to 6.22 percent from 6.30 percent a week ago.
But you’re a real estate investor, not a day trader trying to time the bond market, so be careful about letting the media push impact your decision making process. One thing I like to do is look at long-term data series – a practice that helps me put the day’s headlines in proper perspective. Take the interest rate example. HSH Associates is a financial publishing company that provides some excellent historical information on a number of statistics, including national monthly averages for fixed rate and adjustable rate mortgages . The chart below shows the monthly national average for 30 year fixed rate mortgages since 1986:
The Federal Reserve raised rates 17 consecutive times over the past couple of years responding to fears of inflationary pressures, so we’re not reading about record lows like we were back in ’03 and ’04.
The green part of the series represents data points that are lower than the current rate, whereas the red data points are higher. So yeah, there's a good bit of green over the past few years. But when you look at twenty years of data you realize that in a historical context rates are still extremely low.
I’ve used ARM’s before but right now I’m a fan of the 30 year fixed. The spread between a 1 year ARM and the 30 year fixed can get up to 3 or 4 percent, but currently it’s contracted back to around half a percent. And with national averages still hovering in the mid six’s long term investors should see a lot to like about locking in at these levels.
