Real Estate: Is now a good time to buy?

A lot of recent articles in the media have commented about potential issues or warning signs in the Real Estate market. They point to rising interest rates, rising prices, and low wage growth affecting affordability. They contend that recent tax law changes have affected the desirability of real estate investing. They also say that foreign investors have pulled back, because the dollar has increased so much in relation to other currencies, that it makes investment in US real estate less profitable. This would lead some to believe that it is a risky time to invest in real estate.

However, when it comes to Real Estate investment, I have come to an entirely different conclusion. My belief is that inflation and interest rates have only one way to go, and that is UP! I believe that we are currently enjoying a golden age of low interest rates and low (relatively) current inflation. The figure below shows a graphical history of the average annual 30-year mortgage interest rates for the past 45 years. This data is from the Freddie Mac website, and I have used excel to put it in graph form. What this data tells us, is that the recent trend of less than 5% interest rates for 30-year mortgages is a historical aberration. In the past 45 years, less than 5% annual average interest rates have only occurred eight times – the last eight years. For the period 1972 to 2017, the average annual interest rate is over 8%!

30-year mortgage annual interest rate, 1972-2017

With this time perspective, I hope you can see that interest rates are still at historical lows, and that now is the time to take advantage of this historical anomaly. If you are able to get a 30-year fixed mortgage at less than 5% and hold onto that mortgage, you could be paying back a mortgage at a very low interest rate with dollars that will be worth significantly less in the future, due to inflation. Not only that, but you will also enjoy an inflation protected “hard” asset that will not lose its value, due to the ravages of inflation. The time is now. Take advantage of the opportunity to gain at the bank’s expense. My answer to the titular question is an emphatic YES!

real estate investing - growth over time

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