Hello everyone and Welcome to another
episode of Selling Greenville the real
estate podcast that I Stan McCune realtor
here in Greenville South Carolina do
it's all about real estate here in the
upstate of South Carolina and we have an
exciting show for you guys today where
we're going to be talking about the
history of mortgage rates what that
means for you now how that impacts
what you can do here in the upstate of
South Carolina and also just how it will
potentially impact the market now and
years from now but before we get into
that real quick just a little bit of
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home buyers and everything in between so
let me know I'm here to help all right
more mortgage rates mortgage rates have
been something that we have been just
perplexed by this year we have never
seen and by we I mean pretty much
everyone including Bankers Realtors
appraisers everyone is perplexed by the
mortgage rates this year because they
have been unbelievably low and this is
worth we we've talked about this here
and there in this show but this is worth
taking just a special episode to talk
about because I mentioned this on my
Facebook page earlier this week just
how people's the light bulb is going
off in people's minds that is like wait
a minute rates are so low right now if I
were to buy a house now I could buy much
more house than I have currently and
still be paying the same thing yes
that's true and that's something that
we'll be getting back to here in a
few minutes towards the end of the
episode I'm going to break down what
that actually means for you practically
but before we get into that I want to
discuss kind of how we got here and and
kind of the history of mortgage rates to
put all of this in historical
perspective because that's important for
us to consider what this means and what
it will mean going forward and when you
look at the history of mortgage rates it
really is fascinating it's gone all
over the place and even just when I
graduated college this in 2008 mortgage
rates around that time and and I'm
getting all of my data from Freddy
Mac just FYI when you go back to
when I was in or when I was just
graduating college mortgage rates were
in the 6% range which sounds right now
at this moment just sounds absolutely
crazy but at that time
6% was what the average was and if
you got below 7% that meant you had a
pretty good credit score I I remember
this I remember looking at houses a
little bit here and there and factoring
on okay if my if my mortgage APR is
6.5% then here's what that would mean
in terms of my payment etc etc that was
just the way it was and historically
that rate was quite good you think oh
man 6% everyone must have thought that
that was super high no actually people
looking back and looking back at what
mortgage interest rates had been in the
past they were pretty happy with six six
half% because between 1970 and 2001
mortgage rates pretty much never dipped
below 7.5% I think that they dip below
like one very brief time but they pretty
much that entire time were above 7.5% I
think the average is well above 10% it
even peaked in 1981 at
18.5% I can't imagine being a realtor
back in in the early 1980s and having
to deal with that
you know people paying interest
that's basically a fifth of of their
home value to a certain extent depending
on their on their down payment that
that would be a crazy time to try to buy
and sell real estate I'm glad that rates
are low right now that that makes one
thing that makes one part of the process
a little bit easier and a little bit
simpler but 18.5% in 1981 well it it
came down from then it it's never
gone back up to that point but like I
said prior to 2001 I kind of hovered at
least above 7 and a 12% and then if you
remember in the early 2000s we have what
we called the
do bubble that burst when all
these internet companies came into the
market all at the same time and we found
out that the market couldn't really
handle all of that I was in high school
so I I'm not super knowledgeable about
what all went down at that time since
I was in high school but when the bubble
burst then rates started going down a
bit
and all if you fast forward so you
remember I said that when I graduated
college in 2008 they had gotten down to
6% well you fast forward just 5 years
later so now we're at the very tail end
of the Great Recession okay it seems
like these major econom IC events have
an impact on mortgage rates in fact they
do because what happens is the
Federal Reserve starts to get involved
and what they do directly impacts
mortgage rates so in 2013 we're here at
the end of what we now call the Great
Recession and the FED has been tinkering
with a lot of different things with
with rates and whatnot and in 2013 they
went down to below
35% for for the first time at least
since this has been
charted the average mortgage rates went
down below 3 and a half% in 2013 which
you think about this that's over a 50%
reduction from what it was prior to the
dot bubble burst when it was over 7% so
it's now below 3 and a half% that is
over a 50% reduction in you know BAS
basically 12 years I mean that's a that
in itself is historically mindblowing
and then you know if you go back to 1981
when it was
18.5% and you look at some of the
other dates in that time period where
rates were so high it came down a
tremendous amount and really a
relatively short amount of time and
around this time I actually
refinanced my house and I remember
thinking to myself man I am all set for
the next 30 Years these rates are never
going to go back down to this level I
mean this is going to be the greatest
interest rate that I will ever see
surely they're going to creep back up to
what they've historically always been
but here I am I'm going to be sitting on
this 30-year mortgage for as long at
least as I keep that house and I still
have that house now it's a rental
property for me but that was what I
thought at the
time and for a time I was correct
rates did start to creep back up and and
that's what it should that's what should
happen rates should creep back up I'm
not going to get into all them the
macroeconomics maybe at some point I can
have an economics person on here and we
can discuss more broadly what is
happening when the when the Federal
Reserve Tinkers and and causes rates to
go up or rates to go down but rates
started to go up not too quickly I
remember reading a lot of articles
about how the the Federal Reserve was
saying they didn't want to shock the
markets by increasing rates too quickly
but they did want to increase rates in
order to benefit the economy and so
that's what they did to the point that
two years ago all right November I'm
recording this in November of 20120 two
years ago in November of 2018 rates had
crept their way the the average mortgage
interest rate had crept its way up to
4.94% the highest it had been in
quite some time quite some time and it
seemed like it was only a matter of time
okay it's going to it's going to go over
5% it's probably going to be 5 and a
half% soon and and maybe it'll reach
kind of back to that 6% point that was
kind of like the ceiling just a few
years
ago well that's what again two years ago
what we thought but actually rates kind
of Flatline they came down a little bit
off that
4.94% Peak they kind of flatlined a
little bit and then guess what happened
well you know what happened in 2020 Co
hit and guess what happened when Co hit
the FED said wait a minute we have to
make sure that we
ensure that there isn't a bigger
recession than what's happening already
and so the Fed starts getting involved
and starts causing rates to go back down
again and mortgage interest rates start
to plummet they start to go to levels
even below what they were in 2013 start
going into the low 3es rates that we've
never seen before but you may remember
if you were if you were following this
that something also that we had never
seen before happen at the same time and
that's that we ran into Supply and
demand issues in the banking World Banks
became overwhelmed they couldn't handle
the number of people that flooded the
market to refinance cuz you had a
variety of things that play you had
people realizing that they could
refinance you know maybe they had had
bought back in November of 2018 or
around that time and they had that much
higher interest rate and now they're
like well my gosh I can just refinance
down to 3% why wouldn't I do that and
then you had the people that perhaps
were right on the cusp of moving but
Co hit and they're like I don't think
we're going to move now we're we're
going to hang tight for a little bit but
let's save a little bit of money while
we're at it and so they go ahead and and
move forward with refinancing rather
than rather than moving so a lot of
different things happened and and the
market got flooded with demand for
refinances and new loans and it got
crazy there for a while I mean it we
were having situations where new loans
I should say really more refinances
were taking up to two and a half to
three months because the banks were just
trying to get caught up and
eventually they did they I don't know
you know how much of it is because
demand flatlined it it didn't my
understanding is that demand did not
Flatline until just recently so I think
that most of the banks had to hire their
way out of of this issue they had to
find ways to meet the demand with their
own
Supply and I'm sure there's a lot more
to it than just that again I'm not a
banker but at the end of the day
eventually they were able to meet the
demand to some extent again there were
there were a lot of delays that we dealt
with this year but they were able to
meet the demand when that happened we
started to see rates go down to even
more historic level so since that has
happened now we're seeing commonly this
is now common place that we see 30-year
loans at or below 3% 30-year mortgages
at or below 3% interest I'm seeing some
pre-approvals right now for some of my
clients in the nearly
2.5% for a
30-year loan again the the previous
lowest that we had ever had was around 3
and
1/2% back in 2013 now we're close to 2
and 1/2% it's basically we we joke
about you know free money it's
basically free money that's the closest
thing in life that you come to free
money is when someone is when a bank is
willing to lend you you know
$300,000 at a at an interest rate of
25% and it it's it's just a an
unprecedented we talk about this a lot
you hear this all the time we're in
unprecedented times and yes we are in
multiple ways well in the world of
buying and selling houses these times
are unprecedented because money is cheap
and you can buy a house without having
to pay nearly as much interest as you
would have had to just a few years ago
this is squarely a third of what you
would have paid in interest on a 30-year
loan versus 20 years ago one
oneir 33 imagine going into a store and
you see everything is 67% off well guess
what mortgage interest rates are 67% off
what they were in the year
2000 that is absolutely wild absolutely
insane and people are now in a position
like they have never been before to
upgrade their home without having to
increase their mortgage
payment and this is what I was saying
before where the light bulb is coming on
with some of my clients as they're
getting pre-approved and they're seeing
these
numbers they don't even realize their
mind is blown they're shocked that this
is even possible but trust me it is
possible in fact I ran some numbers just
out of curiosity I ran numbers right
around our Upstate of South Carolina
median where we have our our median home
sale is around 230 240 so I I I was was
tinkering with some numbers in the
200,000 to kind of see what it would be
what someone that bought a home for
instance two years ago could afford now
for the same mortgage payment now I I
did one thing that you need to know
just in full disclosure I did not
include any taxes or Insurance in these
numbers because taxes and insurance can
vary you can have PMI you can have
homeowners insurance that might be
higher or lower depending on your
history as a homeowner you might have
flood insurance I'm not factoring in any
of that every house is a little bit
different same thing for insurance just
because you get a bigger house doesn't
mean that your insurance your
property sorry your property taxes
that's what I meant to say I did the
same thing for your property taxes that
just because you buy a bigger house
doesn't mean that your property taxes
are going to go up it depends on your
county it depends on your city where
I am in Greer my property taxes are
extremely high and that has more to
do with just some of of the things that
the city of Greer is doing for instance
they take care of of our trash and
and some other
things I'm able to put my leaes leaves
out to the curb and they'll haul those
away from me so taxes are a little
bit more expensive where I am than where
I used to live and that has nothing
to do with the home value directly with
the same home value my house would have
been cheaper so so I I left all of
that out I'm just comparing Apples to
Apples in terms of of the actual amount
owed on the house assuming a 5% down
payment all right so you do have to put
a little bit more down when it's a when
it's a higher priced home but let's just
say with all of that factored in let's
just say that you bought a home for
200,000 down put down 5% as your down
payment sorry let me rephrase that
you bought a home for 200,000 and you
put 5% down all right there we go and
you did that in November of 2018 now if
you'll remember I said in November of
2018 the average rates were
4.92% for a mortgage your average
mortgage interest rate this time around
you're able to get preapproved to buy a
house for
2.625% that is a real rate that I saw on
a on an application recently
2.625% so
over basically
2.3% lower than what your interest rate
was exactly two years
ago how much do you think that impacts
your monthly payment how much more house
can you buy now than you could back in
November of 2018 with the with the
difference between those two rates are
you ready for this in 2018 you bought a
$200,000
home in 2020 you can buy a
$265,000 home and still pay the exact
same amount per month actually it might
be a tad lower just depending on how you
calculate some things you would get the
same home the same monthly payment
for a home that is
$65,000 more and if you're dealing with
the worlds of of percent it's it's a
huge percent increase from 2, 265,000
and if you look at houses at all you
know that the difference between a
$200,000 house and a
$265,000 house is a tremendous
difference that is a huge difference
because a
again I said earlier the median price
point in Greenville is is around 240
this is for the entire area this
isn't just specifically Greenville city
the entire area of the upstate the
median price point for a new home that
or or for any home purchase is 240,000
give or take so a $200,000 home by
Greenville standards is a starter home
where as a
$265,000 home by Greenville standards is
an above average that is a that is
something you've now gone beyond what
what the average household in the area
has so you've been able to go from a
starter home basically to that next home
up you know the one of the things of the
American dream is that you you buy a
home and then you're able to to keep
upgrading over the years well the reason
why that
works and and why people talk about that
as the American dream is because they're
assuming that their income is increasing
so that they can afford more house but
right now we're in a situation where
even if your income has not increased
the past two years you can afford a
house that is
$65,000 more than what your house was
worth that you purchased two years ago
and that is crazy now you do have to put
this is assuming 5% down payment so you
would have to put a little bit more down
with a
$265,000 home than you did back in
2018 but again it's it's absolutely
insane what you can do right now people
are in a situation where they can keep
their mortgage payment the same and have
a much nicer house than what they
currently live in and I should
mention this is going to have major
ramifications for upcoming years and and
I'd be remiss if I just kind of
didn't at least mention this in passing
but a lot of people have refinanced
this
year and I mean that's obvious I've
refinanced multiple times between
several of my different properties that
I have and what do that
mean particularly if rates do start
to creep back up and perhaps maybe they
get back up over that 42% range maybe
they even go back over 5% again what
does that mean well imagine that you're
someone that that buys a home this year
with a mortgage interest rate of you
know in the twos for a 30-year
mortgage and a few years from
now the you're in that position where
you might be buying a new home
right where you would normally be in
position to buy a new home and now the
mortgage rates have gone up and now
they're double what your current
mortgage interest rate is your APR would
be squarely double I'm just saying
hypothetically what do you think you
would do in that situation not only do
you have to pay more for the bigger
house but you also have to pay more for
the
financing what I think we're going to
find is there's going to be a ripple
effect here in the market a few years
from now probably it might not be for 3
four maybe 5 years but people are going
to stay in their homes longer because
they're going to to discover hey we
don't want to give up this mortgage rate
and it's also possible that people will
decide to just hang on to that home that
they have such a a cheap mortgage on
rather than selling it which all of
these things are are ultimately not good
for the market in a lot of ways because
we're in a situation where we have more
demand for houses than we have Supply so
we need people to be selling their
homes but I'm afraid in a few years from
now that we're going to run into a
situation where there's going to be a
real slowdown in the real estate market
because we're going to see people that
normally would be moving deciding not to
move we're going to be seeing people
that are moving but normally would be
selling their homes to decide to not
sell their home to keep that home as a
rental property or or whatever the case
may be and we're going to have a
situation that again is unprecedented
where people are scared to buy because
they're like we don't want to pay that
much more to the bank versus what
we're paying right now in addition to
having to pay so much more principal
because we have you know potentially
a much more expensive house that we're
looking at people are going going to be
scared to do that and so this is
something that we'll have to watch for
the next few years because I do believe
it will have an impact I do believe that
people are going to change their home
buying and selling habits in the
upcoming years because of 2020
2020 it hasn't been as bad
economically as perhaps some have
made it out to be it's it's definitely
hurt brick and establishments but real
estate for the most part has still been
Trucking along pretty strongly but is it
possible that it will have a negative
impact on real estate down the road I I
think that is very possible and like I
said that is something we'll have to
continue to track and see well that is
all for this week's episode if you have
any questions or thoughts about any of
this again my contact information is in
the show notes we have some flooding
coming into the upstate so be careful on
the roads stay safe and until next time
let's buy and sell some houses
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