Six Important Trends to Watch – Week 4

Residential Mortgage Rates:

Following The Fed’s announcement that they will keep interest rates steady, residential mortgage rates dropped by about 80 basis points. Whereas in November 30-year mortgage rates were almost at 5%, the current interest rate on 30-year mortgages is in the very low 4% range.

That does not sound like a huge difference, and you may wonder why residential mortgage rates impact the land market. But there is a significant relationship.

Lower mortgage rates revive new home construction thereby reviving demand for land that can be developed into residential communities and timber. The revival is most obvious in the housing market. But the same pattern holds for whether it is commercial real estate or agricultural land.

Please do not be lulled to sleep by this stability. We are going through a transition and this is the peak of the real estate market for this cycle.

It is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is land.