We all know about the current historic low mortgage rates.  Today’s report from Freddie Mac survey indicated a 3.55 percent average on a 30-year fixed rate mortgage.  Sometimes it is worth reviewing past data, particularly for the younger generation, to check just how low the rates are today.

This is the rate one would lock-in for the next 30 years.  It is not inconceivable to think that the price of a Big Mac may rise to $8 in about 10 years.  It’s possible gasoline will rise to $10 a gallon, or a typical two-bedroom rental in San Francisco could cost $5,000 per month.  But the monthly mortgage payment would not be rising over the life of the mortgage.

The following graph shows the amount of money needed to buy a typical home in the U.S.  On average a recent homebuyer’s mortgage payment would be about $700 per month, not too different from the amount required to buy a home 30 years ago even though home values have nearly tripled over that time span.

The only problem is there are indeed many people who want to lock-in the current generational low interest rates, but the banks are too darn stingy to lend (or regulators have made it difficult, or there are too many lawsuits thrown at the banks, or there are too many new uncertain and burdensome regulations on financial industry).  Real estate investors with cash are well aware of this mortgage difficulty trend for many would-be first-time homebuyers.  Real estate investors also know of the housing shortage possibility (from low housing starts levels) and the rising rent trend.  No surprise then, the real estate investors are therefore on the field taking advantage of the current market conditions while first-time would-be homebuyers are forced to sit on the bench and watch the opportunity pass by.

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