Low Interest Rates

Low Interest Rates

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I mentioned it on Wednesday, and I think it deserves another mention today. That’s not really true. If it were just a mention then I wouldn’t have made the mention the headline, and I wouldn’t be sitting here today trying to figure out how to write 600 or more words on the mere mention. It’s less a mention and more a topic, though as with most of my topics it’s less a topic and more a momentary ramble destined to last as long as it possibly can, or twelve minutes, whichever comes first.

Interest rates. They haven’t really mattered all that much over the last few years. They seem to matter at all times, but truthfully they have mattered very, very little. The reason for their irrelevance since the strange fall of 2008 is simple. They haven’t mattered because the overriding fear in the market has mattered so much more. Why be tempted by a low interest rate to buy a property when the price of that property is still falling? No matter how cheap the knife, if it’s falling and you catch it you’re going to get cut.

The low interest rate environment of the last four years has been largely ignored, and for this very good reason. If rates are low but prices are falling, then there’s no reason to be lured into a dangerous market solely on account of those tempting rates. That is why the rates today, on this snowy March day, on this day when spring is but a cruel wish that likely won’t ever come true, on this day these rates finally matter.

Real estate is on the mend. Not the rebound in most cases, but certainly the mend. There are plenty of factors that make this recovery tenuous, including the widespread unemployment that is in no swift danger of going away. There is a debt crisis of epic proportions that is looming and guaranteed to do nothing but grow over the course of the next four years. Lastly, there are legions of people, millions, who have lived through foreclosure actions and are now relegated to the real estate sidelines whiling away their credit score imposed time out. There are troubles with the markets, but these troubles are light and momentary compared to the troubles that presented at the depths of the housing recession.

If things are getting better, no matter how slowly, there is one thing that is an apparent certainty. Housing prices are either at their bottom, or awfully, painfully, close to it. This is why the mass uncertainty has been removed from the broader markets. Prices seem stable, because they are. Inventory seems lower, because it mostly is. And foreclosures seem to be ebbing, because they sort of are. So with these doubts removed from the buyer’s minds, there is now the chance that an overriding positive will spur them into action. Enter, interest rates.

Lake Geneva is a market that has always boasted a very strong cash position. Our owners here tend to lack extreme leverage, which is why we have fared so well during the downturn that exposed the weakest members of most markets. The cash position is well known, but plenty of owners choose to smartly use their borrowing power to their advantage- an advantage that is at its most obvious when jumbo rates hover around 4%. These low rates spur buying activity, and if you don’t believe me I suggest you do some reading on the years 2000-2006.

The thing about these low interest rates is that they have an expiration date. That date cannot be known, but the time to indulge in these low rates appears to be short. The knowledge that these rates cannot last forever, let alone the remainder of this year, is cause for concern for those out there that will be buyers at these low rate levels and watchers at higher levels. There is time to negotiate a deal, and time to secure a ridiculously low rate, but time is not on our side.

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