Why are the interest rates so high?

in real estate? Everytime I go bid on a house my bank tells me the interest rate is higher then it was last time I bid on a house. It seems like a home mortage interest rate is as bad as gas prices. No dumb answers please. Serious about this. Am I being taken in by my bank?

Update:

Thanks everyone! I guess It's not bad at all. I'd better hurry up and get a house and that fixed rate. I had no idea interest rates used to be that high.

21 Answers

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  • 1 decade ago
    Best Answer

    You are not being taken. Interest rates change twice a day. They go up and down depending on stocks, bonds, unemployment rates, feds raising/lowering prime rate, etc. The market is viable right now. Rising energy prices, and ongoing war, etc.

    Mortgage rates have been going up for about a year and a half. The reason the Feds raise the rate is to prevent inflation. 30-year mortgages are generally determined by selling of bonds. Two different things, although they usually copy each other. When stock prices go up, so to interest rates and vice-versa. Unless something happens to shake up the economy, you wont see a break from interest rates anytime soon. About 3 years ago they were the lowest in over 50 years and who knows if we will ever see it 4% or 5% again.

    "Why are they high?" They are actually not as high as they were 10 years ago, and they will go higher. I attached a link to a chart that shows the general history of mortgage rates.

    http://www.guyerteam.com/intratehistory.htm

    It is still safe to buy a house, however I wouldnt recommend any creative financing. Stick with a fixed rate mortgage. You dont need interest only, adjustable loans. They will adjust in a few years to a much higher rate. If rates go down, you will always have the option to refinance that loan.

  • 1 decade ago

    Good grief, interest rates are low. There was a time around 1980 that they were almost 20%. Imagine locking into one of those once.

    The reason rates keep going up is that the Fed has been slowly raising rates for the last few years. The economy is improving steadily and the improvement is significant enough that there is a danger of causing inflation. The Fed is raising the rates in an effort to slow the economy down to prevent inflation from running out of control.

    The best advice in an economic situation like this is to hurry up and lock in your rates and get a house now. You can always refinance down if rates dip again.

  • 1 decade ago

    Actually, you're being taken for a ride from the current owners of the targeted real estate AND the bank. It's a savvy team effort between the two.

    You can get a confusing and scientific explanation about the political/economical dynamics involved in real estate--however, here's the condensed easy to digest explanation:

    Wealth is the prize eyed by the land owner, real estate agent AND the bank; a land sale for them is a win/win/win--and it's a well run team effort, too.

    Prices vary geographically: beach-side properties, for example, are FAR more expensive than say, land beside a semi-abandoned railcar yard. Suburban rows of houses tend to call for steady mid-range prices; trailer court yard land properties.....well.....they often have rock bottom price tags.

    Does this veil discrimination, perhaps? Well, that's very possible. The land owner may not want a certain "social demographic" occupying his/her ( or commission panel company, et al ) owned land area(s).

    What better way to keep undesirables out by "fixing" the game: raise stratospheric prices, make loan acquisition akin to climbing Mt. Everest--with ever changing rules, set on your "credit score" among other criteria.

    Oh, and it's all snugly protected by Federal "fair/equal" opportunity "watchdog" groups as well.

  • Anonymous
    1 decade ago

    Possibly. The Federal Reserve (kind of the grand banking system and decision making board behind what all banks follow along with) is run by a Federal Reserve Board. It has a chairman. The old chairman was Alan Greenspan, you've probably heard of him. Anyway.....they determine what rate they are going to use to loan out money. This is called the "prime rate". Other (more local) banks follow suit by setting their interest rate relative to what the prime rate is. You might have a variable rate loan that is "Prime rate + 1%", for example. Credit cards are usually something like prime rate + 7% or something, depending on what your credit score is.

    Anyhow.....the federal reserve has been raising the prime rate a quarter of a percent at a time for quite awhile now, so other banks are raising their rates as soon as the prime goes up. Supposedly the reason the Fed is using to raise the prime rate is that they are trying to keep inflation down. I suppose they're doing that by tightening the money supply, my understanding of their reasoning kind of breaks down at that point.

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  • Anonymous
    1 decade ago

    Interest rates aren't high... you must be pretty young... because it was less than 20 years ago and interest rates were in their mid teens... and they've been in there 20%+ range as well. Interest rates are still lower than they have been in 30 or 40 years... it's only very recently that they've gone up at various times .25% to .50% ... I think that they've gone up 3 to 5 times over the last year, year and a half.

    Trust me, even if you think rates are high right now... buy your home before they go higher because if things keep going the way they're going in our world, interest rates will be back up over 10% within 2 years.

  • 1 decade ago

    The Federal Reserve controls interest rates insofar as banks are concerned. Currently, inflation is the major concern for the FED. Our economy is red hot, and runaway inflation would be disastrous for us all. The housing market drives almost every means of production in the nation.

  • 1 decade ago

    Interest rates for borrowing are going up to stimulate interest rates in things like mutual funds to also go up, to strengthen our country's economy. As the cost of money increases, so do the returns. The returns are valuable, because those monies can be used for capital expenditures to grow businesses and employ more people, in a time when unemployment is high in many parts of the country.

  • 1 decade ago

    interest rates are not high by historical standards

    interest rates are rising, but they are rising from some of the lowest rates in modern times

    interest rates are still low as compared to the average over the last 100 years

    if you think your bank is not quoting competitive rates, there are many on-line loan companies that will quote you a rate for comparison

    and there are other on-line sources that give typical rates or best case rates

    http://realestate.yahoo.com/loans

  • 1 decade ago

    actually, they are not that high historically, there has been interest as high as around the 20% in the 80s.

    but the question as to why an interest rate is high or not depends on many things, 1st it is a way or tool that the federal government uses to control inflation, try to stimulate economy or try to slow down the economy. it doesn't always work, but usually it helps regulate how the market and economy will behave.

  • 1 decade ago

    High?

    My first home in 83 was at 21%!

    This is a GREAT rate! Of course I'm lock in with a 30 fixed at 5% now!

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