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Knock-Knock-Knockin’ On Seven’s Door
It wasn't all that long ago that five-handle mortgage rates seemed like a real possibility again.
The local low in late-September was 6.13% on the MBA's gauge and a little lower on Freddie Mac's weekly Primary Mortgage Market Survey.
Somewhere around then, I was chatting with the collective of agents, hammer-swingers and number-crunchers you have to assemble if you want to build something, and the mood was... well, constructive, if you'll pardon the accidental pun. "We're in a falling rates en
I’m the Trustee of a modest trust, the main asset of which is a Residential REIT. Selling would result in up to an 80% marginal tax rate due to a long chain of 1031’s that were rolled into this. So I’m stuck crossing my fingers that it will not go belly up while the funds are still needed for elder care.
I’m in touch with the CFO and other officers frequently. I often ask questions related to their preparedness for higher interest rates. About half of their buildings will be refinanced in the next 4 years. They all are in complete denial that rates can go higher from here. I think it’s groupthink because the reason they give as to why they can’t go higher is because the government couldn’t afford the interest payments. When I remind them the Iraq War, the tax cuts a few years back, and many other things are simply being paid for with printed money they maintain those were one offs. They all supported the President-Elect and are very happy he won. I keep thinking getting what they wanted may cost them their company if interest rates spike right when they have peak refunding needs.
So at least with this one REIT, the suits there aren’t any more aware of the possibility interest rates can rise than the folks H was speaking to in the article. When I talked to them about the election last week, I thought of Michael Collins knowing he’d signed his death warrant and how completely unaware they were that getting what they wanted may result in bankruptcy.
I remember getting a 9.25% mortgage in 1985 thinking I hit the jackpot. I would have killed for a 7.
Yeah, there’s certainly an argument to be made — and I’ve made it repeatedly — that the prices are the problem, not the rates. I mean, government guaranteed or not, these are 30-year loans for hundreds of thousands of dollars to people, most of whom, let’s face it, have no business buying something that costs hundreds of thousands of dollars. That transaction shouldn’t come at no cost to the borrower. Some money can be free, and probably should be free. But all money can’t be free in every context. If all money’s free — if leverage is readily available at virtually no cost — then the whole setup ceases to work properly. That’s when you get froth and runaway price growth. The result of that is what we have now. Ideally, you have a balance where borrowers are paying a rate that accounts for the inherent riskiness of what it is they’re asking a lender to do, but they (the borrower) isn’t being asked to pay an absurd price for something people arguably have a “right” to in developed countries into which they pay taxes. Note from that quick exposition that this is pretty simple really. It’s amazing the lengths we go to to overcomplicate things.