With election season poised to roar into high gear, I’m about to begin officially (oh, all right – unofficially) to discount most of what I read over the next few months. Especially from experts, since many seem to have a horse in the race.
But while we are still in the nobody’s-paying-attention-yet month of August, I thought I should bring local real estate readers -- homeowners and future homeowners alike – an item that caught my eye late last week. I had to read it three or four times before it sank in.
The headline read, “Housing: Good Vibrations,” with the subhead, “Real mortgage rates plunge into negative territory.” It’s the kind of negative news I don’t remember seeing a lot, but it certainly sounded interesting.
The author was Charles Schwab & Company’s Chief Investment Strategist, Liz Ann Sonders, who often makes more sense than many of her colleagues. Her point was how “real” gross domestic product (which differs from the simple GDP because it accounts for inflation) is a better capture of the real world. Likewise, the “real” mortgage rate differs from the plain old mortgage rate by taking into account the appreciation or depreciation of the underlying real estate. Right now, with real estate beginning to appreciate in value while the mortgage rate is incredibly low, the RMR (Real Mortgage Rate) has gone negative!
A negative RMR creates an amusing situation. You can look at it as if the banks had gotten together and decided that it would be a good idea for them to be paying us, the local mortgage consuming public, for the privilege of using their money to buy our home. In truth, of course, the banks make some cash. But less than their loan is now earning for the lucky mortgage holders –at least in terms of the growth in their real estate’s value.
To me, it’s the mortgage rate equivalent of not just a free lunch -- but a free lunch where the server gives you a nice tip after dessert. Or like checking into a posh hotel, staying the weekend for free, and then -- as the bellman piles the luggage into your car -- he thanks you and hands you a twenty. It’s nearly like the IRS sending you a notice that (if it’s all the same to you) they would rather not deduct anything from your paychecks. For the next 30 years.
Or like eating cake and having it, too.
It may be an exaggeration, but in any case, this is the kind of ‘negative’ we haven’t heard for a while. Call me if you would like to check out some of our Pelican Bay and Bay Colony, Naples, Fl real estate offerings that could let you take advantage of today’s environment.