The Past, Present, and Possible Future of Mortgage Rates

If you are seeking to buy a home this year, you’re most likely paying close attention to mortgage rates. Mortgage rates impact what you can afford and affordability is a big challenge today for most potential homebuyers. One thing you can do is to take a look at the big picture of where mortgage rates have been historically compared to where they are now. Aside from that, it is important to understand mortgage rates’ relationship with inflation for insights into how the rates may change in the future.

Giving Context To Today’s Mortgage Rates

Since April 1971, Freddie Mac has been tracking the 30-year fixed mortgage rates. They frequently release the results of their Primary Mortgage Market Survey, which compiles the mortgage application data from lenders across the United States.

If we look at the right side of the graph, we can see that mortgage rates have increased significantly since the start of 2022. However, even with that spike in costs, today’s rates are still well below the 52-year average. While that historical perspective offers good context, buyers have gotten used to mortgage rates between 3% and 5%, which is where they’ve been over the past 15 years.

So that is why looking at past data can be helpful. It explains why the recent jump in rates may have been shocking even though they’re close to their long-term average. While many buyers have adjusted to the elevated rates over the past year or so, everyone would welcome lower rates. However, we need to factor in inflation to determine if that is even a realistic possibility.

Looking To The Future

Since early 2022, the Federal Reserve has been working hard to lower inflation. This is significant because, historically, there has been a connection between mortgage rates and inflation. The graph below displays a reliable correlation between inflation and mortgage rates.

If we were to look at the left side of the graph, each time inflation moves significantly (shown in blue) mortgage rates fallow suit shortly after (shown in green). The circled portion of the graph highlights the most recent spike in inflation, with mortgage rates trailing closely behind. As inflation has moderated a bit this year, mortgage rates have not yet made a similar move.

So, by taking the historical data into account, what this means is that the market is waiting for mortgage rates to follow inflation and go back down. It’s impossible to accurately predict where mortgage rates will actually go, but moderating inflation means that mortgage rates going down in the near future would tie into this well-established trend.

What’s Next

If you are interested in learning more about the relationship between inflation and mortgage rates, reach out to real estate professional Dianne Anderson today. She can help you and your family to determine the best time to move so you can get the best possible mortgage rate for your new home.

Post a Comment