My father, Peter, wrote a newspaper column for awhile called “Money Talk” (His investment tip of the week if you like). Here, verbatim is the first half of a column he mailed to me recently:
“When is the right time to buy real estate? Yesterday? Last year? Five years ago? Construction costs continue to climb and with the near certainty of inflation, they’ll go even higher. Interest rates are fairly reasonable now and will probably not increase very much this year; they may even drop a bit. Most lenders have ample funds at this time and need to put them to work.
With the prospect of continued inflation, more and more lenders are considering variable interest rates so that as their costs increase, they can adjust the rates they charge on their loans.
Variable or Fixed? It seems to this writer that a fixed rate is to the borrower’s advantage at the present time. You’ll probably pay your loan back with ‘cheaper’ dollars and your property hopefully will appreciate in value.”
Your first reaction might be “Sounds like what a lot of people are saying right now”. And that’s the interesting part, since the column was written in March of 1976. My father also sent me a handwritten record of the bank prime rates that he kept for about 25 years as a personal reference (He was a bank executive most of his working life). The prime rate in early 1976 was 7% and would drop briefly to 6.25% by year’s end. But that would be the lowest rate we’d see until after the Gulf War. His call on locking in a fixed rate was pretty amazing.
It may just be coincidence that he decided to send this to me now. But considering his past timing I’d be cautious about betting against that.