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The ebb and flow of interest rates
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Gentlemen and Boys; My husband and I watch the news and stay abreast of current events for reasons we won’t discuss here.  Suffice it to say, we like to be aware of what’s going on in our world.  With knowledge comes a little fear that you may have missed a point or forgot.  Forgetting is today’s question for you Boys.  We have forgotten what the interest rates have done over the last 40 or so years.  I know I could go to the Internet and get the answer, but your answers honestly amuse us every Saturday morning. 

— Mr. & Mrs. Al Zheimer

I’m sorry I’ve forgotten your name already.  There’s an old wives’ tale about losing.  I think it goes “use it or lose it.”  If you keep up on current events, Larry and Lloyd are confident you have not lost your marbles…..yet, at least.  Anyway, when I was in school I kept asking the teachers why do I need to memorize this if I can find the answer in a book?  Let’s just agree that we have forgotten more than we remember.  Al Zheimer, I remembered see.  Thank you for this week’s question and a good one at that considering the uproar over the Fed’s raising the rates recently.  And, like you said, we went directly to the computer and there was the answer on the second hit.  See if you two can remember what the rates were at the end of this article.

Rather than say the rates were low then got high then low again or copy the rates monthly since 1971, we’re going to try and make a little story line with the numbers.  We are going to begin our journey back in time some 39 years ago. 

A young couple gets married and has dreams of owning their own home in the near future, but right now they have not saved up the needed money to purchase.  The rates averaged out for the 12 months to be 9.18 percent.  And yes, even back then in the olden times, the banks offered the conventional rates with at least 10 percent down and FHA with just 3 percent as the down payment.  In 1975, the young couple still did not have enough cash to make that huge step forward into massive debt at a 12 month average rate of 9.05.  The rates had gone down just a bit. 

Finally, in 1976, by getting a small loan from the wife’s mom they had enough to buy a house in Denair.  It was a fixer built by the Runyans.  It needed a lot of cleaning and paint and then landscape, but it was affordable at $29,000 and the rate was 8.87 percent.  Again, the rates had gone down again.  Total payment for the young couple was $250.  His dad said you can’t afford that payment, but you can’t afford not to.  The $250 was not quite 25 percent of the couple’s net income monthly.  In 1977, the rates were 8.85; 1978 the rates jumped to 9.64 percent and in 1979, the year  ended at 11.20 percent — a rather large jump up. 

The new decade began and the interest rates seemed to go up then drop a little.  By years end the average rate stood at 13.74 percent.  Towards the end of the year, the young couple decided it might be time to sell and take advantage of the appreciation of their house.  Remember, they bought in’ 76 at $29,000, then listed and sold their home at $69,000.  Holy bat wing Batman! They made $40,000 on their $3,000 investment!  By the time the house closed escrow in January 1980, the rates had skyrocketed up to about 13 percent.  The kids had found a replacement house and applied for a new loan for $75,000.  Sadly, they did not qualify for that loan because the house payment would be more that the lender felt they could afford.  In the meantime, the little couple found out they were going to be a family soon and really needed that new house.  Luckily back then, you could assume loans from the banks.  The young couple had to take all the money they had made on that first house and pay it all down to assume the loan.  The rates continued to escalate during the Carter 80s.  January 1980 was 12.88 percent, February 13.04 percent, March 15.25 percent to then December 1980 and the rates were 14.79 percent.  At the end of 1981, the rates ended up being 17 percent.  Through the 80s rates stayed steady in the 16s, 17s and then 18.  Then back to a legitimate 13.24 at the end of 1983.  I recall Realtors saying “oh, if rates would just get down to 12 percent, we could sell, sell and sell.” Well, at the end of 1986 rates did finally begin to go lower.  Rates hovered at 10 percent  in ‘87, ‘88, and 1989 and  ‘buy, buy and buy’ was the housing market motto. 

Then, in the early evening of Oct. 17, the earth began to move like a wave.  Standing out at Julien School the trees swayed and the earth kept rippling.  The earthquake in San Francisco had hit.  The next day this agent lost four escrows from sellers in the Bay Area buying in Turlock because their home rocked off its foundations.  That day in mid-October was the day the real estate market was rocked to sleep for the next 10 years.  A recession hit and it really didn’t matter that in the 90s rates went from that 10 percent mark as low as 7 percent in 1998 and 99. 

Finally, after a dreadful 10 years in real estate and after Y2K, the new decade seemed to wake America up and real estate again began to move.  Rates in 2000 actually went up a point from the 1999 rate of 7.44 percent  — hold on to your seat my friends —  up to 8.05 percent.  While homes began to move faster and faster, rates continued to slide down.  Rates for 2001 and ‘02 floated in the mid 6.5 percent.  Rates stayed about 5.50 percent in 2004-05.  After the last down market, 2005 to the present, rates have been holding  at 5 to 6 percent, then the last few years in the 4 percent range and even as low as 3 percent.

So, what’s all this mean to you and Mr. & Mrs. Al Zheimer? Probably not much, really.  As you can see the rates went up and then came down.  The rates seem to have no bearing on the market.  The rates are dependent on the economy as a whole.  This last go around is a classic example; the Feds thought everyone should own a home, so to do that the Feds lowered rates so more people could qualify to buy a home.  I think we see that this idea sort of failed when the rates adjusted, those people who fudged a little on their personal income lost their homes and a few banks failed and we’ve gone through yet another crash in the real estate market. 

If I’ve learned anything over the last 30 years in this business, it’s the market changes up and down about every 10 years.  Lastly, and most important readers, today’s rates are incredibly low when you look at rates over the last 40 years.   So when your Realtor says it is a great time to list and sell or just go out and buy a home, your Realtor is right on.  I doubt today’s rates in the mid 4 percent will be around this time next year, so act now before it’s too late folks.  Until next time, if I can remember. 

  — A little about us, Lloyd is a retired farmer of 27 years and a realtor for about 10 years.  Lloyd is an active member of the Central Valley Association of Realtors and sits on the CVAR Board of Directors.  Lloyd is a long time member of CVAR’s Master Club for his sales production.   

Larry has been involved in Turlock real estate for 30 years and has been a broker for almost 27 years.  He is also active in CVAR activities and is a past president of CVAR.  If you have questions please call Lloyd at 531-4853 or Larry at 484-4216.  E-mail questions for future columns to: or