30 Years Of Summer Followed By 30 Years Of Winter

Dated: 11/07/2017

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Historically interest rates have shown they run on a 60 year cycle: approximately 30 years of rising rates, followed by 30 years of falling rates. Rates are closely tied to the 10-year T-Note. They have shown a slow but steady overall decline since 1980. This followed a rise from lows last reached in the mid-1940s. We can now see that 1940-1950 marked the beginning of an upward trend in rates that peaked in 1979. 

This roughly mirrors the 60-year period prior to 1950, in which interest rates peaked in 1921. Going forward, Realty Publications, Inc. expects another slow upward run in rates for 20-30 years. After that, there will be a reversal into rate declines as occurred following 1980.

The key lesson to remember:

Real estate is most properly priced and held for its inherent rental value. Those who buy property for speculative gain, not rental income, will see little success in gains from a flip in the coming 30-year regime of rising interest rates. Speculators will need to develop another business model for acquiring real estate ownership positions. Their gains will be similar to those who invested in the real estate market from 1950 to1980. During that 30-year period, mortgage rates moved slowly upward until they exceeded 18%.

The next peak in rates will take another 30 years or so to arrive. Our just ended half-cycle’s years of steadily decreasing interest rates and increasing prices(and profits) since 1980 have run their course. The Greenspan put is no longer available to deliver profits until interest rates again peak, heralding in the half cycle of lowering rates. In the long run, investors in real estate need to increase their wealth. Profits will not be achieved by flipping properties for profit. Rather, by generating rental income over net operating costs over the course of long-term ownership.

In boom times, property owners were accustomed to capitalization (cap) rates of 6% or less. For the upcoming years, 8%-10% will be the norm as an annual rate of return on real estate investments, not profit on resale speculation, becomes again the standard for gauging ownership values.

What are the keys to success?

• prudent property selection;

• careful research;

• forward-looking cap rates; and

• a long-term commitment to real estate ownership.

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Raul Acuna - CA BRE #01708572

Raul Acuña - Raul has been in the Real Estate Industry since 2005. Raul began working at an REO brokerage before opening his own REO company in 2010. Raul has a business degree from Cal Poly Pomona, ....

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