Like the in-laws or that old friend from high school, the economic downturn has been an unwelcome guest in all of our homes for some time now. And I’m starting to wonder if part of the issue isn’t our own timidity.
I was talking to a mortgage banker friend of mine here in Jacksonville recently who put this thought into perspective for me. For instance, she showed me an excerpt from an article in Time magazine:
“But the US economy remains almost comatose…. Unemployment is still high; real wages are declining…. The slump already ranks as the longest period of sustained weakness since the Great Depression.
That was the last time the economy struggled under as many “structural” burdens, as opposed to the familiar “cyclical” problems…. The structural faults … represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought; the debt hangover; … the banking collapse; the real estate depression; the health care cost explosion and the runaway federal deficit.”
Thing is, the article isn’t from September of this year. It’s from 1992.
So what happened next? 16 years of explosive growth, that’s what. It’s easy to forget that now. And even in the midst of all that growth, it took awhile to recognize it for what it was.
In other words, lots of us missed the bottom back then. And if we don’t get off our bottoms now, we may miss it again.
Consider some simple math, also provided by my mortgage banker friend:
A 30-year mortgage loan of $200,000 at 4.5% equates to an interest and principle payment of $1,013.37.
A 30-year mortgage loan of only $170,000 at 6.0% equates to an interest and principle payment of $1,019.00!
The lesson is simple. When rates rise, it will cost us more to borrow less. We all understand that. But many buyers are still on the fence. Even at today’s ridiculously low interest rates.
Let’s look at it another way. Using the same figures from above, real estate values would have to drop an additional 10% or more to begin to make up the difference! How far do you think we have to go to reach the bottom? Or are we already there and we just haven’t figured it out yet?
What we do know is that rates will go up. The Federal Reserve has said as much while also stating that the US Treasury will dramatically drop its purchases of mortgage backed securities.
Of course, nobody has a crystal ball. We can’t predict the future. And the challenges are different, market by market. Housing in Jacksonville proper, for instance, face a different set of issues than those in Ponte Vedra Beach or Saint Augustine.
But I think it’s safe to say that today’s perfect storm of low prices and low interest rates make right now the best time to buy in years. And when the recovery kicks in full gear, and rates and prices go up, who’ll be left sitting on the fence wishing for a time machine?
Tip of the hat to my mortgage banker pal Ricki Taylor.