BAD MARKET TO BUY IN?

Real Estate Scoop

Missy McAmis

 

IS IT A BAD MARKET TO BUY IN?

The bank failures were caused by runs on the banks during the Great Depression which prompted the US Congress to pass the Glass-Steagall Act of 1933. This Act provided deposit insurance and formed the US government corporation called FDIC. Recently, the depositor coverage was changed to $250,000, per depositor per bank. This Act stabilized banks through depositors. However, it took many years for the economy to accelerate. Prime interest rates have been a marker of sorts to our economy. The prime interest rate is also the indicator of what interest rate banks will loan you money at and pay you interest on your deposits. Last I looked, close yesterday, prime was at 3.25% and the libor rate was 1.07%. Interest rates in 1929 were 5.5-6%, the start of the Great Depression. It was a trying time both personally and for businesses. It took many years to recover from the financial devastation. In 1935, our government made many of the same types of infusions, taking conservatorships and aiding financial institutions to recover. Aside from the rebounds from over-inflated markets, the “money” industry has steadily improved since that time.

 

From 1935 through 1969 prime slowly but steadily increased, from 1.5% when the first bank “bail-out” to the 8.5% in mid 1969. 1970 saw 8% and maintained high single digits until 1973 when it hit double digits for the first time ever. It bounced a bit until 1974 when it hit 10% again and rose to peak at 12%. 1975 through late 1978 ranged from 6.25% to 9.75%, with an average of 7.75%. October 1978 hit 10%, peaked at 21.5% (highest ever) in 1980 until single digit again in mid 1985. 1985 to 1988 average was 8.61%, a year followed of double digits when in 1991 9.5% was the rate. Through the 90’s until mid 2001 prime was never less than 6%, averaging 8+%. December 2001 was the first time since 1972 prime fell under 5%, from then on max was 8.25% with the 5% minimum until October past when it fell to 4.5%, most recently 3.25% a fifty year record.

 

Did anyone but banks make money in the 80’s when prime was 20+%? Ahh yes, the folks that had money in the bank (depositor interest was fabulous) and the folks that had money to buy real estate in a real estate market seeing declining prices, short sales, foreclosures and REO’s. Short sales were not as common as foreclosures, people did not know they could save their credit and sell their home they were upside down on, more times than not, they simply let banks foreclose. Property unable to sell at foreclosure was owned by banks. Banks are in the money business, they do not want to be in the real estate business. Properties were purchased for investment, as values had been rising steadily the fall was a welcome sign for buyers. Panicked sellers finding values decreasing were motivated to sell to avoid increasingly declining values or losing more money.

 

Interest rates are great for refinance of higher rates to these great lower offerings, equity lines, and of course new home purchases at these interest rates are great. Got a job, credit in line and debt ratio is good, you are ready to start the new year in a new home. Now is the time. Contact your Realtor. Information deemed reliable but not guaranteed.