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Some context is needed. Yes, I just bought a house. But it is the fifth house that I have owned in my lifetime. I bought my first house shortly after I turned 25. I have no fear of residential real estate.
So it is kind of an interesting experience when I buy a house, because, by anybody’s definition, I am a financially sophisticated guy. In fact, you could probably put me in the top .01% of financial sophistication. I am a macro expert, I have an informed opinion on the future direction of interest rates and home prices. But interestingly, the most money I ever made on a house was that first one when I was 25, when I didn’t know my ass from a hole in the ground.
Most people who buy a house are financially unsophisticated. They don’t know jack about interest rates. Likely they have never seen a mortgage amortization table, or have any idea how principal amortizes over time. They have never seen statistics like the Case-Shiller index, or building permits or housing starts or new home sales. They don’t care. They like a house, they buy the house. Oftentimes, people make money in spite of themselves.
So just because I know all this finance stuff, don’t mean that I am much better off. But hear this. 3.75% on a 30-year fixed rate mortgage is a generational low and is not going much lower. If someone is offering you the chance to borrow money for 30 years at 3.75%, you should probably take it. Just saying. I actually had no debt on my last house, and I gotta tell you, the best thing in the world is not having a mortgage payment. I had the ability to pay cash for this one, too, but…at 3.75% I am going to borrow the money.
30 years is a long frickin’ time. Imagine you take out a mortgage in 1965 for 6%. Inflation is 2%. In the 70s, inflation goes much higher (including wage inflation). By the time you get to your last payment, in 1990, it is almost an afterthought, it is so small. Of course, if you take out a 30-year fixed in Japan in 1990, you are really not happy, because of deflation, but that seems unlikely here.