“How are things, Jeff?” I asked my friend recently. “I bet business is good with these low interest rates…”
I’ve known Jeff for many years. He also happens to be a local mortgage banker. We were both eating dinner at the same restaurant earlier this month.
“Business is great,” he answered. “I just locked in a 30-year mortgage today for a client – at a rate of 3.375%.”
“3.375%!” I said. “Lucky client…”
To see just how crazy this is, you need to understand one thing.
That number is about the all-time record low for a mortgage rate – in U.S. history. Seriously…
Looking back at the last century, the best mortgage rate you could have gotten for a house was just under 5% – back in the late 1940s.
In this century, mortgage rates bottomed out in 2012 and 2016 at around the same 3.375% level Jeff just locked in for his client.
In short, mortgage rates today are as good as they get. And that means the time to act is now.
So what should you do? You should do the obvious thing in this case… and refinance your house – right now.
Better yet, consider buying a house…
You’re probably thinking, “Are you kidding, Steve? Don’t you know that house prices are way up?”
Sure I do. The median existing home price in the U.S. is about $289,000 today. That’s an all-time high… even higher than what we saw at the peak of the housing bubble a dozen years ago.
Take a look at this chart. It uses the 10-month moving average to show us the trend in housing prices. And as I said, the actual median home price today is even higher…
We all know prices are up. But here’s the important thing: The price of an investment isn’t the only thing to consider.
Ultimately, what you need to consider is value, not price. You need to answer the question, “What am I getting for my money?”
When you start thinking seriously about value, housing “affordability” is the ultimate measure in the housing market. This is a combination of three things: the house price, the mortgage rate, and the household income.
Household income doesn’t change a whole lot over time. So interest rates and house prices are what affect housing affordability the most.
House prices are at an all-time peak. But thanks to ultra-low mortgage rates, housing in the U.S. is still incredibly affordable. Take a look…
This chart distills the three pieces that make up affordability into one simple number. A reading of 100 means a typical person can afford a typical house in the U.S. A reading of 150 means he could afford 150% of the typical home price. So higher numbers (low on the chart) mean housing is more affordable.
As you can see, the market isn’t as cheap as it was in 2012, when both house prices and interest rates were incredibly low. But remember, my friend Jeff is writing mortgages at the lowest rates in U.S. history.
Again, don’t look at the price by itself… Look at the value. The value in housing today is all about interest rates. They’re at near-record lows… And that’s giving us our extraordinary opportunity today.
So please, talk with your bank. Or go online. Do what it takes to at least find out how much money you could save by refinancing today. (Make sure you ask about how long it takes before you “pay off” the closing costs… That basically tells you when refinancing starts to be profitable for you. And if it’s in five years or less, it’s a no-brainer.)
But my friend… refinancing is the least you can do. I urge you to go further…
I urge you to consider buying U.S. residential real estate.
I am practicing what I preach here… I bought another house in Florida to update and rent out – just this month!
I get it. The deals in property aren’t as great as they were in 2012. But we have near-record-low mortgage rates. That means housing is still a great value today.
Take advantage of this opportunity! Consider refinancing – right now. And consider buying U.S. residential real estate – right now.
Good investing,
Steve
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Source: Daily Wealth