Financial Literacy August 24, 2022

What Are Mortgage Rates Doing?

In this post I’m going to do a quick analysis of what the current market is doing, what we are starting to see as professionals, and what we thing mortgage rates are doing. I will analyze the historic trends and give some insight as to where we feel they are going now, going to stay at, and are going to end up early next year. Let’s dive in!

What are mortgage rates doing?

Over the past few decades, interest rates have followed a fairly steady downward trend. In the early 1980s, the average 30-year fixed mortgage rate was over 16 percent. By 2000, that rate had fallen to just over 8 percent. And in recent years, it has hovered around 4 percent. This interactive graph is an excellent tool to see how interest rates have acted.

What are the historic trends?

Historically, interest rates seemed to be cyclical over ten year spans. If you look at the interactive graph you will see that almost every 10 years the previous low was retraced but interest rates never went back above that.

For example: July 2008 interest rates were at about 6.5%. July 2018 they were at about 4.5%. August 2010 they stayed around 4.3% while in August 2020 they were at 2.9%. Now, we’re in August of 2022 where interest rates have hiked their way up and seemingly stabilized around 5.3%. We haven’t retraced past and remained at 2008’s high of 6.5%. August 2011 established rates around 4.2% while in Aug. 2021 we saw rates around 2.8%. January of 2013, rates were around 3.5%. Assuming these trends continue, it may be okay to assume they will stabilize around 4% by the end of the first quarter next year despite the predictions of high 6% mortgage rates.

At this point, only time will tell.

What does this mean for buyers?

Over the past two years, interest rates were at all time historic lows around 2%. Ultimately playing a HUGE part in the buying frenzy we all saw. With that said, very few 1st time homebuyers had a chance to compete with the bidding wars, highest & best offers, and non contingent offers being submitted. So what slowed the market down?

Interest rates have creeped up to the 5.5%-6% range which has slowed the market. Instead, we are starting to see a things calm down. Overall, prices are starting to level out and 1st time home buyers are starting to have a chance.

Personally, I think this is a great time for buyers to step in regardless of the higher, but still historically low, interest rates. Here’s why:

  • Over time, houses appreciated. Waiting for interest rates to come back down only means you are going to pay more later for the house.
  • If you buy now and have a high interest rate you can always refinance later when the rates come down.

What does this mean for sellers?

As a whole, the market remains a sellers market simply because supply is low and demand remains high. Currently, with the increased interest rates we could expect sellers to lose some of their leverage. Concurrently, we are starting to see sellers lower their asking prices and offering concessions towards closing. We’re seeing a lot of sellers who missed out on the previous buying frenzy try to list their properties at prices way over what they should be. As a result, listings are sitting longer until the sellers decide to lower the prices. Once done, we’re seeing the properties move. Sellers, it is important to understand when looking at comps in your area the prices are inflated because of the previous market. The closing prices on the houses you are seeing are probably 30-50k over what they should really be.

Overall, I believe it’s still a good time to buy. Sellers it’s still a good time to sell. Buyers the longer you wait the higher prices on homes are going to go. Sellers the longer you wait, you risk moving your property quickly as interest rates rise.

If you found this post informative and would like to read more check out my other posts here.