I have been noticing in the past few weeks that interest rates have started hardening. I do not have the exact figures, but it seems that the rates for housing loans have started approaching double digits now.
I wrote a post on interest rates a year back (see here). Back in 2003-2004 the rates were at an all time low (as low as 7.5% fixed and 7.25 % variable). However everyone looking at the immediate past, were prediciting further drops (what else would explain almost everyone’s preference for variable rate loans?). I almost got into an argument with the loan officer in getting a fixed rate loan (the loan officer kept telling me that I was making a big mistake).
My logic in working out a rough pricing level for loans was detailed here. General extremes in valuations, whether stock or interest rates are easier to spot (although I cannot predict them). However I do not know if the rates are high now, will rise or fall in the future. What I feel strongly is that any rate lower than 8% is good and should be locked in via a fixed rate loan.
There are a few new conventional ideas now prevalent such as
- real estate is great investment at any price and will rise 20-30 % per annum due to the extreme shortage of real estate in india (for better idea of real estate bubbles, read about the 90’s real estate bubble in japan)
- Indian economy has entered a new era and stocks are worth more now. Every drop in the market as a result presents a new opportunity to buy
I don’t claim that I know any better on the above two new convential ideas in vogue currently. I am however unwilling to pay for the bright and shiny new future in these investment classes (stocks and real estate)