Invest in a Little Time Travel
Let’s start this week off with a little time travel and go back to July 1985. On July 3rd, the American classic “Back to the Future” was rolled out in theaters nationwide. The following week saw photos of Madonna in Playboy that left absolutely nothing to the imagination and Ronald Reagan’s colon that left many wishing they didn’t know THAT MUCH about the US President. In the midst of all that, Nolan Ryan became the first pitcher in Major League Baseball history to strike out 4,000 batters. In that same month, this advertisement (and MANY others like it) appeared:
“Rock Bottom Rates!” What?!! If someone were to come to me today for a mortgage, and I told them that I had a smokin’ deal on a 30-year fixed mortgage at 11.875%, they’d ask me what I was smoking. That’s absolutely insane, right? Well, not really. If we go back a little less than four years, to October 1981, we find that rates topped out at almost 18.5%, so a rate of 11.875% would definitely be viewed as a smokin’ deal.
In October of 1981, the average price of a home was $82,500. Assuming a 5% down payment, that gives us a loan amount of $78,375. At 18.5% on a 30-year fixed mortgage, you’re looking at a monthly payment (principal and interest) of about $1195. Adjusting for inflation, $1195 back in 1981 is equal to approximately $3413 today.
Using that same adjustment rate, a 1981 home at the price of $82,500 would equal one at the price of $235,669 today. So, if you were to purchase a home for $235,669 today with a 5% down payment, you’re looking at a loan amount of $223,885.50. At 5% on a 30-year fixed mortgage, you’re looking at a monthly payment (principal and interest) of about $1197 (that’s only $419 back in 1981).
While Ronald Reagan’s colon (cancer notwithstanding) and Madonna’s body certainly looked better and Nolan Ryan’s arm performed better back in 1985, things are DEFINITELY better in the here and now with interest rates and the housing market in general. And remember, a home is a much better investment than a DeLorean.
