Shiller: Now Is ‘Auspicious Time to Buy a House With a Fixed-Rate Mortgage’

Tuesday, 23 Apr 2013 08:03 AM

By Dan Weil

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The 32-year decline of interest rates and inflation may soon end with a thud, says Yale economist Robert Shiller.

“Interest rates have been declining for decades now,” he writes in The New York Times. “Clearly, that cannot continue on the same track for another 10 years, because rates would have to turn negative.”

As for inflation, it “can rise,” Shiller says.

Editor's Note: The Final Turning Predicted for America. See Proof.

“It’s easy to imagine that both [inflation] and interest rates will rise substantially, creating a bonanza for homebuyers who have already locked in low rates. And because rates are so low now, they could climb a lot once they turn.”

So the next 10 years might replicate the 1960s and 1970s, when inflation and interest rates kept rising, he explains.

Homeowners who locked in low fixed-rate mortgages during that period did well, as the nominal values of their homes surged, while their real mortgage balances dipped, Shiller notes.

So what are the implications for the home market now?

“With rates relatively low, this could be an auspicious time to buy a house with a fixed-rate mortgage,” Shiller says.

That’s especially true for those looking for a place to live rather than speculating on home prices.

Housing starts soared 7 percent in March from February, pushing the annual rate to its highest level in almost five years — 1.04 million.

“There’s still a lot of room for improvement in housing, both for activity and for prices,” Aneta Markowska, chief U.S. economist at Societe Generale, tells Bloomberg. “This is critical for the U.S. economy.”

Editor's Note: The Final Turning Predicted for America. See Proof.

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