Bill Morris: Higher Mortgage Rates? A little historical perspective ...

Higher Mortgage Rates? A little historical perspective ...

Mortgage rates are on the move again, and this time it looks like increases are more likely to continue than the brief surges we have seen occasionally over the past couple of years.  Here are the weekly average mortgage rates so far this year:

Weekly Mortgage Rates 2010
Clearly, rates have increased in recent weeks, and since the last "official" data included in this graph loan officers tell me they are quoting even higher rates now.  This week's data, when released, will likely show that we have returned to interest rates last seen about eight months ago.

I posted last week (Mortgage Rates, Payments, and Buying Power) about the real-world effects of these changes.  It is a fact that higher interest rates reduce home buyers' purchasing power, and the effect is much more pronounced now than ten years ago -- a 1/2% increase from 4% is a much larger change than 1/2% when the rate is 8%. 
Having fanned the flames of buyer discontent last week, I want to offer a little historical perspective.  I have done this before, but it is timely now.

As I pointed out in my previous blogpost, the difference in monthly payment on a $200,000 FHA purchase when the interest rate moves from 4% to 6% is significant:  $244!  And a move to 6% in the coming weeks or months would not be surprising.  Keep in mind, though, that even 6% is incredibly low -- artificially so -- and waiting another year or two is likely to cost even more.  Note this chart of 30-year mortgage rates since 1963:

Weekly Mortgage Rates 1963-2010
(Reproduced with the permission of Mortgage-X.com)

Yes, for those who didn't experience it first-hand, that peak in 1981-1982 was at about 15% (and some borrowers paid even more).

Moreover, even if we go back up to 6% early next year, we will still have the lowest mortgage interest rates in more than 40 years! 

Couple that with the fact that the probable direction of home prices will be UP, and the message is that NOW remains an excellent time to buy a home.
It is true that rising rates erode purchasing power, but delay will erode it even more.

Bill F. Morris, ABR, CRS, CDPE, e-PRO, MBA
RE/MAX Capital City
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Comment balloon 1 commentBill Morris • December 20 2010 11:19AM

Comments

We are fast approaching that 5% mark.. although the past 2 days have been "happy ones" for the mortgage world, after 5 weeks of blood bath selling!  Even with the recent uptick we will likely see the year's average be well under 5% (my guess the Avg for the year will be about 4.75).... and considering the 20 yr average is 7.2% and the 40yr average about 9.2% How the heck can we complain about something as low as 5 or 6??? (because we are spoiled!)

Posted by Robert Rauf (HomeBridge Financial Services (NJ)) almost 9 years ago

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