We are currently experiencing historically low mortgage rates. For the last fifty years, the average has been on Freddie Mac A 30-year fixed-rate mortgage was 7.76%. Today that rate is 2.81%. Groups of homebuyers have been exploiting these remarkably low rates over the last twelve months. However there are no guaranteed rates to stay this way low much longer.
Whenever we try to anticipate mortgage rates, we need to consider the tips by Mark Fleming, Chief Economist at First American:
“You know, the misrepresentation of an economic forecast doesn’t always test and forecast interest rates and / or more specifically, if you’re mortgage rates on a real estate economist, because you’re always usually wrong.”
Many things affect mortgage rates. The economy, inflation and Fed policy, just to name a few. This makes forecast rates difficult. However, there is one metric that has resisted for the last fifty years – the relationship between mortgage rates and the 10-year treasury rate. Here is a graph detailing this relationship later Freddie Mac began keeping records of mortgage rates in 1972:It is impossible to deny the close relationship between the two. Over the last five decades, there has been an average 1.7-point spread between these two rates. It is this long-term relationship that has some forecasters projecting an increase in mortgage rates as we move through the year. This is based on the recent increase in the 10-year treasury rate shown here:The spread between the two is now 1.53, indicating that mortgage rates could rise. In fact, rates have already risen. Like Joel Kan, Associate VP on Economic Forecast for the Mortgage Bankers Association, reveals:
“Expectations of faster economic growth and inflation continue to boost Treasury yields and mortgage rates. Since hitting a survey low in December, the 30-year fixed rate has slowly risen, and climbed to its highest level since November 2020.”
How high could they go in 2021?
No one knows for sure. Sam Khater, Chief Economist by Freddie Mac, lately suggested:
“While there are many temporary factors increasing tariffs, the fundamental economic fundamentals point to tariffs remaining in the low 3% range for the year.”
What does this mean for you?
Whether you’re a first-time buyer or you’ve bought a home before, even a half-point increase in a mortgage rate (2.81 to 3.31%) makes a big difference. On a $ 300,000 mortgage, that difference (including principal and interest) is $ 82 a month, $ 984 a year, or a total of $ 29,520 over the life of the home loan.
Given the 50-year symbiotic relationship between tax rates and mortgage rates, it looks like mortgage rates could rise this year. It may make sense to buy now instead of wait.
Content previously posted in Keep Current Things