History of Mortgage Interest Rates & Why We Shouldn’t Worry

As I write this in March 2018, interest rates are rising and may hit the 5 percent* mark this year. This trend is not slowing down and the days of 3 percent mortgage rates, which we have enjoyed since 2012, are likely gone for a very long time.

When examining historical interest rates, the 5 to 6 percent range is actually a good deal! Starting back in the early 1970’s, rates averaged 7.6 percent.

Many will remember The Great Inflation. Political leaders and the Federal Reserve created massive budget deficits that led to the inflation. This means the government was spending more money than it was receiving, leading them to print more. This diluted the value of the dollar and caused inflation. Prices skyrocketed. This, in turn, made interest rates rise. If you are interested, you can read more about The Great Inflation here.

Inflation continued until the mid-1980’s. In 1982, rates were at their highest. The average rate was 16.04 percent that year. It was common to see interest rates above 18 percent. Interest rates rose until inflation stopped.

In the late 1980’s unemployment began to drop from around 11 percent to 6 percent.  The economy picked up and interest rates began falling until mid-2017.

The reason for interest rates rising today.

Today we are a very long ways away from the 16% to 18% interest rates we saw in the 1980’s. However, the trend of falling interest rates since the 1990’s seems to be ending.

Why is that?

Josh Mettle, Fairway Independent Mortgage Corporation Area Manager and industry leading author, wrote a full article titled “WHAT IN THE HECK IS GOING ON WITH MORTGAGE INTEREST RATES?”. The article explains why interest rates have started to rise.

In the chart below is the mortgage back security trading for the last four years. If you look at the right side of the chart, it takes a dive. This is showing the price of the Mortgage backed security bonds.  Mortgage bonds have an inverse relationship to rates. Therefore, as the price of the bond goes down, the corresponding interest rate that a client would receive goes up.

Now you can see the last time we hit these levels was around September 2014. That is the last time we have hit this interest range.


(Source: mbs highway)

 

Why have rates changed direction so suddenly?

During the 4th quarter of 2017, the Federal Reserve started to unwind their assets – look at the QE Unwind graph. During the 2008 Financial Crises the Federal Reserve bought over four trillion dollars’ worth of bonds, these were U.S. Treasury bonds and mortgage backed securities. This buying of bonds brought down long term interest rates globally and made it easier for companies and individuals to invest in their businesses and buy homes.

They have since quit buying mortgage-backed securities, which is the precursor for interest rates and they have begun to let those bonds that are maturing fall off. That means there is excess liquidity coming into the market and the Fed is no longer a buyer.

Please read Josh Mettles full article for more information: “WHAT IN THE HECK IS GOING ON WITH MORTGAGE INTEREST RATES?”

 

As Mr. Mettle states:

“As rates make their ascent to their historical norm (around 7.75%), buyers today need to realize that 5% and 6% rates are actually a relative bargain.  In a rising interest rate environment, the first home you like is typically the best buy because higher and higher interest rates await you in the future”

It may be a good time for you to purchase your new home sooner rather than later. We do not see any reason for rates to stop climbing and the cost to wait may be bigger than you may think.

Below is a chart showing the impact of waiting only one year to buy could have**.

 

With interest rates on the rise, you might be considering buying sooner than later.  If you’re searching on the most popular house hunting apps, you could potentially be wasting up to 47% of your time since their data is dated. We’ve discovered a better tool!

This tool is called HomeScout. This app has many of the same user-friendly mobile features, but unlike the other apps, this has one hundred percent live access to the multiple listing services and allows clients to search for homes with the exact same power and information that Realtors do.

Download HomeScout FREE today: https://homescout.app.link/SEARCHBETTER

 

Josh Mettle
Area Manager & Sr. Loan Officer
385-355-2130 O
801-699-4287 M
eFax 866-574-5371
josh@joshmettle.com
2063 E 3900 S, Salt Lake City, UT 84124
NMLS#219996

 

*Mortgage rate projections are not a reflection of Fairway’s opinion or guarantee of interest rates in the current or up-coming market. **Hypothetical monthly mortgage payments reflect hypothetical Principal & Interest amounts rounded to the nearest dollar amount and do not include insurance, taxes, or other possible fees. Hypothetical interest rates, mortgage payments, and home prices reflect a hypothetical scenario of a 30-year fixed mortgage loan with a 20% down payment intended to demonstrate comparisons over time. These figures and rates are for educational purposes only and do not reflect an official mortgage loan offer.

Copyright©2018 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. AZ License #BK-0904162; Licensed by the Department of Business Oversight under the California Financing Law; Loans made or arranged pursuant to a California Financing Law License.  NMLS #2289 219996; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Broker- N.Y.S. Department of Financial Services; Rhode Island Licensed Broker & Lender.

Copyright©2017 Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Other restrictions and limitations may apply. Fairway is not affiliated with any government agencies. Fairway is required to disclose the following license information. Alaska Mortgage Lender License No. AK2289; Arizona Mortgage Banker License No. 0904162; CA: Licensed by the Department of Business Oversight under the Consumer Finance Lenders Law; Loans made or arranged pursuant to a California Finance Lenders Law License #262571; Illinois Residential Mortgage Licensee No. MB. 0005475; Kansas Licensed Mortgage Company. KS License #MC.0001375; MA Mortgage Broker and Lender License #MC2289"; Minnesota: MN-MO- MN-MO-20183136. This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of Minn. Stat. Section 47.206 (3) and (4); Mississippi Licensed Mortgage Company; Licensed by the New Hampshire Banking Department Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker-NYS Department of Financial Services; OH MBA License #2289; Oregon Mortgage Lender License ML-3791; Rhode Island Licensed Broker & Lender; VA: NMLS ID # 2289; Washington Consumer Loan Company License No. CL-2289.