The “Looking Glass” ponders economic and real estate trends through two distinct lenses: the optimist’s “glass half-full” and the pessimist’s “glass half-empty.”
Buzz: Happy Mortgage Bottom Day! On the one-year anniversary of mortgage rates hitting their record low — 2.65% for the average 30-year fixed-rate loan — rates hit a 20-month high at 3.22%, says Freddie Mac.
Debate: Historically low interest rates have helped power an economic rebound from the pandemic era’s business chill. But those same financing bargains have raised questions about whether the cheap money policies backed by the Federal Reserve have become too much of a good thing.
Glass half-full
Despite the recent surge, rates still are historically low. Since 1971, rates have been lower than this week’s 3.22% just 3% of the time, says my trusty spreadsheet after reviewing mortgage rates of the past half-century.
Remember, rates typically rise in good economic times, and by many business measures, the financial fight against the virus is paying monetary dividends.
For example, Southern California’s economy added 400,000 jobs in the year ended in November.
Local paychecks were 6.5% higher in the year ended in September, the nation’s largest pay hike, according to the Employment Cost Index.
Southern California also saw the median sales price of a home grow by 16% in 12 months to a record $693,500 in November — with 24% more homes purchased over the year, DQNews says.
Glass half-empty
We’ve already seen a noteworthy jump in rates, historically speaking.
Rates hikes larger than the last year’s 0.57-percentage point jump from 2.65% have occurred 23% of the time since 1971.
And look at what really matters: Over 12 months, a house hunter’s buying power has shrunk 7% due to rising rates. We’ve seen bigger declines only 20% of the time since 1971.
What’s ahead
Cheap money — not to mention various government stimulus plans as well as wealth created by surging real estate and stock markets — sparked a nationwide buying spree of all sorts of goods and services. That, in turn, supercharged inflation.
Locally, the cost of living is rising at the fastest pace in two decades. Nationally, inflation has soared at its fastest pace in four decades. Prices of everything from gasoline to used cars to rent are ballooning.
And the previously generous Fed has clearly noticed. The central bank has broadly signaled it will boost the rates it controls in 2022 to moderate the economy and slow the cost of living’s advance.
Rising rates aren’t necessarily bad for the economy or housing. But to me, it’s a signal to borrow as much as you can for as long as you can. You may kick yourself years from now thinking “I could have gotten 3.22% for 30 years in early 2022 …”
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
