by Rob Purifoy

Created on: August 23, 2008   Last Updated: August 27, 2008

Having been in real estate in one form or another since 1991 I have seen market fluctuations that tend to repeat themselves. The reasons for the changes in interest rates today however do not revolve around the same reasons they did 25 or 30 years ago. As of this decade the Fed began lowering Interest rates to stave off inflation which was likely the reason rates were higher in the late 1980's. Basically the Fed learned from the mistakes of the 1980's in some ways but still managed to leave a hole in the system which eventually shook the housing market. The economy is a hard thing to control, even delicate in some ways.

I that some years after being in the real estate business I found an old amortization schedule book. This was a book that was used to cross reference a particular interest rate to find out what the monthly Principle and Interest of a loan would be. The cover of this book showed that the rate started at 8% and went up to 16%, I was astonished but it was a sign of the times. This book was from around the mid 1980's, can you imagine never having seen a 5% or 6% Interest rate? Gosh we're spoiled. In the days of President Carter we experienced large one-time bumps in Fed Interest rates, 4 or 5 percentage points in one Fed meeting. We also experienced the same Fed rate decreases in this extreme manner. It seemed almost as if the Fed was playing Monopoly. However as I spoke of before, that was a different time and rates were toyed with for different reasons. In the 1980's inflation was rampant, so far in the past ten years or more we have not seen inflation but we may be on the brink after a long recess. With gas and food prices on the rise we are likely seeing inflation right now but being an election year all of that is hushed for now.

To backtrack a bit, I was in the title business up until 1994 when we had 4 file drawers full of pending refinance files which the Fed eliminated in one fail swoop by raising the rates a half point. Even a half point can make or break a worthwhile refinance. 1994 was a turning moment for a while when rates teased 7.25%. It was then that I exited the title business and became a Realtor. Despite a 7% plus rate people were still buying and we experienced a strong housing market. From '94 to '98 real estate values were rising and rates were on the decrease thanks to the Fed attempting to stave off inflation once again. It was a great 4 year run and by 2002 we starting seeing something looming on the horizon in some states. Refinances and "stated" loans were in full force, people were getting a piece of the American dream and rates were in the 5% plus range. In late 2006 we saw the mortgage industry pulling back from the loose, no documentation and stated programs. Since that time loans have become tougher to get, as of August 2008 interest rates have risen to about 6.25% and are threatening to move slightly higher.

All in all I'm not worried about our market as we are seeing some needed stabilization. The government will step in to bail out the big secondary market lenders because they know that real estate is what greases the wheel we know as economy.

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