If you want to buy a home this year, you’re likely keeping an eye on mortgage rates. These rates affect how much you can afford when you take out a home loan, and it’s a bit challenging right now to find something affordable. So, let’s take a moment to look at how mortgage rates today compare to their historical trends and how they relate to inflation, which can give us clues about where they might go.Freddie Mac, a mortgage market tracker, has been keeping tabs on 30-year fixed mortgage rates since 1971. Every week, they share the results of their Primary Mortgage Market Survey, which compiles mortgage application data from lenders across the country.
If you look at the right side of their graph, you’ll see that mortgage rates have gone up quite a bit since the beginning of last year. However, even with this increase, today’s rates are still lower than the average over the past 52 years. But here’s the catch: many homebuyers have become accustomed to mortgage rates between 3% and 5% over the past 15 years. So, the recent rate hike might feel surprising even though it’s close to the long-term average.
Why Does This Matter?
To understand if mortgage rates might go down soon, we need to consider inflation. The Federal Reserve has been working to reduce inflation since early 2022. Historically, there has been a connection between inflation and mortgage rates. If you check out the graph that links the two, you’ll notice that whenever inflation makes a significant move (shown in blue), mortgage rates tend to follow suit shortly afterward (shown in green).
The circled part of the graph highlights the recent increase in inflation, with mortgage rates following closely behind. However, as inflation has eased a bit this year, mortgage rates haven’t followed the same pattern.So, if history continues to be a reliable guide, the market may be waiting for mortgage rates to drop in response to lower inflation. It’s tough to predict mortgage rates with absolute certainty, but if the trend holds, we might see lower rates in the near future.
Bottom Line
To get a sense of where mortgage rates might be headed, it’s helpful to look at their past trends. There’s a clear link between inflation and mortgage rates, and if this historical relationship remains intact, the recent drop in inflation could mean good news for future mortgage rates and your homeownership goals.
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Tue, 12 Sep 2023 00:35:40 +0000
by Mottek Group