For every 100 students who enroll full-time in college or university, 42 percent will graduate within four years and 18 percent more will graduate within six. This means that 40% of college students get all the benefits of student debt without obtaining a degree. And put another way, of those 60 students of every hundred who graduate, 42 will leave with student loans and five will default on those loans by the age of 33. For the 40 who don't graduate, 10 will default on those loans. Even more, 10 years down the line, 32% of the college grads end up in careers that didn't require a college degree in the first place.
"The 1980s: The Federal Reserve's War on Inflation. It's almost unimaginable for today's buyers, but home buyers in 1981 were faced with 30-year, fixed-rate mortgages at over 18 percent. Rates declined from the 1981 high point, leveling to around 10 percent at the end of the decade. At the time, the Federal Reserve, under Chairman Paul Volcker, was waging a war on inflation. In an effort to tame double-digit inflation, the Federal Reserve drove interest rates higher. The Fed raises rates in a strong economy to encourage sustainable economic growth, and cuts rates when the economy needs support. Today, the economy is strong - unemployment is low, inflation is on target, consumer confidence is high, and wages are rising. To promote further sustainable economic growth, the Federal Reserve today is increasing interest rates.
"1990s and Early 2000s: The Information Boom. In the 1990s, inflation calmed down. Mortgage rates tend to follow the same path as long-term bond yields. Rising inflation will push up long-term bond yields to compensate investors for the higher level of inflation, and mortgage rates typically follow suit. The 30-year, fixed mortgage rate averaged 8.4 percent through most of the 1990s, before dipping below 7 percent in 1998.
"A major reason for the decline in inflation was strong economic growth due to the arrival of the internet and information technologies, which prompted corporate capital investment, enhanced productivity and spawned investment in new internet-based 'Dot Com' businesses. In the early 2000's, after the 'Dot Com' stock market bubble burst and sparked a mild recession, the Fed lowered interest rates further. The 30-year, fixed-mortgage rate reached what was then a historic low point - below 6 percent in 2003.
"2006-2008: Housing Bubble and Bust. House prices always went up, nationally, until they didn't. The collapse of the housing bubble exposed the financial system's excessive leverage, contributing to the financial crisis and the Great Recession. To combat the crisis, the Federal Reserve cut interest rates as much as possible and implemented an unprecedented monetary stimulus policy known as quantitative easing (increasing the money supply by buying government and mortgage bonds). With that, a new era of cheap credit was upon us. As a result, mortgage rates fell below 5 percent in 2009, a level the housing market had not experienced in more than 50 years.
"2010-Present: Recovery. Riding the wave of quantitative easing and the Fed's continued monetary stimulus, mortgage rates entered this decade at 4.7 percent. By 2012, they had fallen to about 3.5 percent. In 2013, rates increased to nearly 4 percent in response to the Fed's announcement that it would taper quantitative easing. The 'taper tantrum' aside, mortgage rates remained near or below 4 percent until 2016. Since then, the 10-year Treasury yield has risen as the Fed slowly tightened monetary policy, and the economy expanded. The 30-year, fixed-rate mortgage followed suit and increased to the current level of 4.86 percent.
"Today's Rates May Not be as Great, But They are Still Below Eight. [Catchy Mark!] What is the lesson from this trip through the "mortgage-rate" past? The recent period of mortgage rates between 3 and 3.5 percent is a historic anomaly, as challenging as it might be to believe so after experiencing it for 10 years. Historically, the housing market has performed well when mortgage rates were considerably higher than today. Rates averaged 6 percent between 2001 and 2009. In 2000, they averaged 8.05 percent. In the decade between 1980 and 1990, they averaged a whopping 12.5 percent.
"The key take-away, however, is that people were still buying homes across all of these mortgage rate eras. Mortgage rates have adjusted in the past in response to high inflation, a technological revolution, a housing crisis and a financial collapse. However, today's higher mortgage rates are due to a near record-long economic expansion, and a strong labor market. If you think 5 percent is high, take a walk down mortgage memory lane."
Here are some interesting facts about our market and mortgage rates here in Louisville, KY.
People get nervous about the market and everything surrounding it. We normally don’t see a big
Increase in home values; therefore, we don’t normally see the huge drops that you see when you look
nation-wide. People worry a little bit more about interest rates. On a $100,000 loan a .5 % difference in
interest rate would equal $30 in regards to the difference in the payment. On a $150,000 loan a .5 %
would equal $45. Sometimes people worry about rates going up but we always laugh and equate
them to gas prices in regards to them changing every day. No one likes to pay for gas when it goes up but you still have to have it. Just like you still have to pay to live somewhere. When you look at it on a $150,000 loan, being a $45 difference monthly payment because the rate is .5% higher, is that $45 per month really going to keep you from buying your dream home? For some it may but for most it wouldn’t. If it does make a difference for someone I suggest paying off a small credit card that has a $45 monthly payment. That will help balance out the increase in rate.
What’s interesting is we see a lot of out of town people coming in and purchasing investment properties here because the market is so stable compared to the rest of the country. There are a lot of things to consider! Lending options are still really good, rates are still really good when you look at what we’ve had over the last 25-30 years. Home prices are definitely increasing. I think we will be seeing a bit of a pullback in the housing market because we’ve had so many quarters of larger than normal appreciation. Other regions across the US are already seeing this. If houses stay on the market a little bit longer than what they currently are we are still way above what the averages are.
If the timing is right buying a house has numerous benefits. I always like to share this story with potential home buyers: I have a rental property that someone just moved out of recently. They were there for a full 10 years! They were paying $800 a month. If you do the math, $800 over 10 years is $96,000 that they paid to me. I estimate that out of that $96,000 they probably paid the balance down by about $45,000 and also in that time frame appreciation was probably $60-65,000. When you look at home ownership, it isn’t all about interest rates but about building wealth. The sooner you can purchase a home, the less money you’re throwing away on rent.
As a Trinity High School and Morehead State University graduate I have strong Louisville ties. I enjoyed my years of playing football in high school and college. I entered the mortgage business March 8, 1995, and opened United Financial Group, LLC in April 15, 2002. I love every aspect of the business. My biggest inspiration is the joy it brings me in seeing and sharing the excitement at closing time. Educating people is a priority and explaining in detail all the aspects of the loan process. It’s a huge responsibility when my clients entrust me to help guide them through the process, which I take very serious.