If you didn’t take advantage of the historical low mortgage interest rates over the past several years, you may think you missed the proverbial home buying boat and decide to wait in hopes the market will become more favorable again. Taking a look at trends over the past 50 years as well as understanding why rates fell so low in the first place may help in your decision-making process.
In 2019, average mortgage rates were already quite low compared to the historical average, just under 4%. When Covid hit and the pandemic era became the norm with quarantines, supply chain issues, businesses shutting down and the like, the Federal Reserve quickly implemented policies to keep money flowing through our economy which in turn lowered rates even further.
By July 2020, the 30-year fixed rate fell below 3% for the first time in our nation’s history and by January 2021 it had plummeted all the way down to 2.65%.
These Covid-era policies were only meant to be temporary and once the economy started regaining its footing as restrictions eased, the Federal Reserve had plans to slowly adjust interest rates upwards. However, add a surprisingly rapid 40 year high spike in inflation, rates moved faster than almost anyone anticipated.
According to Freddie Mac, the average 30-year rate jumped from 3.76% to 5.11% between March 3 and April 21 — an increase of 1.35% in just eight weeks.
Yet looking at the data (see chart) from Freddie Mac’s Mortgage Market Survey dating back to 1971, we are still below the five-decade average of just under 8%. Mortgage rates can fluctuate daily as well as yearly, and some years have fluctuated much higher than what we are currently experiencing.
In the late 1970’s, inflation was rampant and the Fed took drastic action in hopes of bringing the economy under control. By 1981, this translated to the highest 30-year fixed mortgage rate averaging a whopping 16.63%. (Proud daughter moment, my mother was an agent at this time with Harry Norman, Realtors and managed to persevere through this incredibly challenging period with her love of real estate intact.)
Will interest rates skyrocket back up to those early ‘80’s levels? Most experts say that is highly unlikely as there were multiple, decade long factors leading to this particular perfect storm back then, but also…never say never.
So, back to the decision you may be considering, should you wait for mortgage rates to go back down? Taking a look at the historical data as well as our nation’s current economic situation, all signs point towards higher mortgage rates in 2022. Although there may be small percentage point dips here and there, the trend appears to be heading upwards in the coming months. Combine that fact with predicted annual home value appreciations still clipping along at a robust pace (estimates for the Atlanta area hovering over 15%), waiting may be much more costly than moving forward, at least for the next 5-10 years.
If you have any questions or would like to take the next steps, reach out. We would love to help!
By Holly A. Morris, Realtor
The Meridian Real Estate Group