Remember the 80’s?
Big hair, jelly bracelets and 20% interest rates.
Homebuyers back then had a tough time, they had to save up for a big down payment and the cost of holding a mortgage was high. All that hard work and sacrifice was well rewarded though as Rob Carrick points out in the Globe and Mail:
The high interest rates of the early 1980s must have felt unbearable for all Canadians buying homes and arranging mortgages (it was heaven for savers, but never mind). The reward for perseverance was a 30-year run in which resale house prices on a national basis surged by an average annual 5 per cent and were up in 28 of 34 years.
This rally was fed by falling interest rates. After the visit to high-rate hell in the early 1980s, home owners benefited from a long decline in rates that continued into 2015. House prices haven’t gone up because homes are a great investment, because of immigration, because of foreign money or because home ownership is awesome. It’s because we’ve had a 30-year sale on the cost of financing a home purchase, with ever-increasing deep discounts.
That sale may be ending. There’s a growing sense that the U.S. economy is on the upswing, and interest rates in the bond market have already started to creep higher. Mortgage rates take their cue from rates in the bond market, so we could see lenders increase fixed-rate mortgage costs at some point this year or next.
For the historical perspective read the full article here.
The thing that may surprise you is that despite a housing market that has provided magical returns for older buyers and cheaper and cheaper debt seniors are still going bankrupt in record numbers.