Here in Sonoma County, California–18.5% Interest rates?? It could happen! I began my illustrious career in 1978 here in Sonoma County, California–rates went from 9 to 10% my first month. Eventually I sold a house to a dentist in Montgomery Village at the inflation fueled rate of 18.5%.
Allison and I just locked in a young buying couple at 3.875%!! That is a 14.62% difference. It gets even more fun–take a $300,000 loan. At 3.875 the payment will be $1411.00 PI but at that startling ridiculous rate of 18.5% the payment would be $4,644 per MONTH. Now granted, the house wasn’t even close to $300,000 back in 1978. As a matter of fact the Doc got into the house with 20% down payment, purchase price $70,000 or $14,000. So his payment was ONLY $867.00 PI. but at our rates today he would have paid: $259.00 per month!! Or roughly three times as much! Now what prompted a smart dentist to pay 18.5% for a loan to buy real estate? We had INFLATION which was AT that level of 18-20% a year! So figure it out. The Doc “leveraged” $14,000 (down payment) with inflation at 20% yearly which, at the end of one year, had his modest Montgomery Village home worth $84,000! So his “return on investment” was 100%!! BEFORE TAXES!! Combine the “straight-line” depreciation write-off we have in those days (15 years I believe) PLUS he was able to also write off all that interest from his horrid loan rate! Can you say, “Hubba-Hubba”!?
We’ve come a long way since those “heady” days of yesteryear. I’d be VERY wary of low interest rates sticking around. The government has borrowed on a grand scale and most every economist will tell you inflation can’t be too far behind. Watch that 10 Year treasury and be aware of the past and how quickly things can change.