If you’re planning to purchase a home in the current year, you’re likely keeping a keen eye on mortgage interest rates. These rates play a significant role in determining the purchasing power of your home loan, and given the current affordability challenges, it’s a valuable moment to examine the historical context of mortgage rates compared to their current levels. Additionally, it’s crucial to grasp how these rates correlate with inflation as it can provide valuable insights into potential future trends in mortgage rates.
Giving Context to the Sticker Shock
Freddie Mac has been monitoring the 30-year fixed mortgage rate since April 1971. On a weekly basis, they publish findings from their Primary Mortgage Market Survey, which compiles an average of mortgage application data obtained from lenders nationwide.
Observing the graph’s right side, there has been a substantial increase in mortgage rates since the beginning of the previous year. However, despite this upward trend, today’s rates remain below the 52-year average. Although this historical perspective is valuable, it’s worth noting that buyers have become accustomed to mortgage rates ranging from 3% to 5% over the past 15 years.
This fact is significant because it clarifies why the recent rate surge may be causing some surprise, even though the rates are close to their long-term average. While many buyers have adapted to the higher rates over the past year, a slightly lower rate would be a welcome change. To assess if this is a realistic possibility, it’s crucial to consider the impact of inflation.
Where Could Mortgage Rates Go in the Future?
The Federal Reserve has been actively striving to reduce inflation since the beginning of 2022. This is noteworthy because, historically, there has been a correlation between inflation and mortgage rates, as depicted in the graph below:
This graph illustrates a consistent relationship between inflation and mortgage rates. On the left side of the graph, each time there’s a notable increase in inflation (indicated in blue), mortgage rates subsequently show a similar trend (shown in green).
The highlighted section of the graph highlights the most recent surge in inflation, with mortgage rates closely tracking behind. While inflation has eased somewhat this year, mortgage rates have not yet exhibited a similar adjustment.
This suggests that, drawing from historical patterns, the market is anticipating mortgage rates to align with inflation and decrease in the near future. While predicting mortgage rates with absolute certainty is challenging, the moderation in inflation hints at a potential decrease in mortgage rates, consistent with a well-established trend.
Bottom Line
To gain insight into the potential direction of mortgage rates, it’s beneficial to examine their historical trajectory. The well-established link between inflation and mortgage rates suggests that the recent decrease in inflation could bode well for future mortgage rates and, consequently, for your homeownership aspirations. If you need the right experts to fully understand and reach your homeownership goals, get in touch with us!
