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It was January 2001. I was doing something novel at the time, remotely checking my desk voicemail while out in the field, and “the field” in this case was a “field”, new construction in Paint Brush Hills out east where the antelope play. Our in-house lender had just sent an “everyone” voicemail” to announce that after a Fed Rate Drop that morning, the 30-year interest rate had dropped to a low not seen in years… 6.875%. I shared this news with the buyers, the builder rep, the jackrabbits. Everyone held a collective gasp.

Rates were under 7. Better act quick!

Last Sunday, I raised a glass to the 20th anniversary of my real estate licensure. My career has seen two significant recessions, three boom markets… and persistently low interest rates. Historically-speaking, my personal story just ain’t that good when it comes to my first home’s interest rate: 8.5%. Rates were commonly in the 11-14% in the early years of the Reagan administration and those were usually on adjustable rates. But for context, take a look at the graph below of 30-year interest rate averages since August 2009.

Given what we know of history, how high interest rates were in the horrible economy of 2009 is particularly peculiar. But likewise, the second-highest interest rate interval over the last ten years was last August. If anything, the national economy is even better now than it was twelve months ago. As the economy gets better, interest rates usually go up. This has not happened over the last six months as rates have steadily improved and dropped.

Here are a couple reasons why rates are not higher:

1.) Brexit. This is the probably the fundamental reason, and that’s because the US dollar is strong and international investors are putting their money in to the guarantee of US Bonds. US Bonds are the underlying support for long-term 30-year interest rates. Boris Johnson is the 3rd UK prime minister in three years, and has publicly said he will exit the European Union without a deal. As London is the heart of finance for the UK – and the EU –  a no-deal Brexit would be financially “interesting” for the United Kingdom, another global economic super power.

2.) The US-Chinese Trade War. Given that this on-going tariff fight has persisted for the better part of a year, it has stemmed some stock growth. The S&P 500 for instance is only up 3% today year-over-year. This again encourages bond purchasing.

Both of these global macro-economic developments have compounded pressure to lower interest rates to a value last seen in November 2016. That’s an important perspective for reasons that are more than “that was the last presidential election”. For the year, the average rate throughout 2016 was 3.65%. That was the lowest annualized interest rate, ever. So to match the rate from November 2016, today… that’s really low.

Buyers should know that while prices are up in 2019, around 6-8% locally, that the amount of cost-savings they have gained due to the interest rate drop actually makes the monthly payment on a 30-year financed mortgage LESS this year, than last. So despite more significant appreciation this year, this year’s buyers are paying less than last year’s buyers.