This week’s Freddie Mac press release headline “Mortgage Rates Exceed Six Percent for the First Time Since 2008” grabbed everyone’s attention. Indeed, mortgage rates are on the move and what does that mean for you and the housing market?
According to Freddie Mac’s Chief Economist Sam Khater, “Mortgage rates continued to rise alongside hotter-than-expected inflation numbers this week, exceeding six percent for the first time since late 2008. Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate. This indicates that while home price declines will likely continue, they should not be large.”
In her blog post, Nadia Evangelou, Senior Economist and Director of Forecasting for the National Association of Realtors, points out that the change in mortgage rates increased monthly payments about 60% compared to the same time last year. She also calls attention to the fact that the pace of rising rents is at a forty-year high! Regardless if you are renting or buying a home, housing affordability is declining. Using a little math, she underscores how increasing rents outpace a fixed-rate mortgage on the purchase of a home.
Yes, mortgage rates are increasing. But a little history will put things in perspective. We all know that mortgage rates reached its peak in the early 1981 as a result of the deep recession of the late 1970’s. Shortly afterward, average mortgage rates dropped of the next several decades (albeit the occasional peak).
However, after the peak housing market of 2007, average mortgage rates dropped slightly in 2008 as a reaction to the market crashes and a decimated housing market. It wasn’t until five years later and average mortgage rates hovering in 3 percent range, that the housing market once again became broadly attractive to owner occupants (as opposed to investors). Mortgage rates have been averaging below 4 percent since then, with the exception of 2018 when rates rose above 4 percent.
Mortgage rates are on the move. Average mortgage rates are now above 6 percent, and there may be a silver lining. Many are hoping that the rising interest rates will reduce home prices (although that remains to be seen). However, after the brief rate shock is over, increased mortgage rates will likely incentivize banks to lend which could increase the pool of home buyers
By Dan Krell
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