Blog

The Rise & Fall of Mortgage Rates…a Freddie Mac Perspective

We recently read this great article that provides historical insight on the rise and fall of mortgage rates.  The commentary below is from Freddie Mac – The Federal Home Loan Mortgage Corporation (FHLMC):

We’ve all heard that mortgage rates are going up these days, particularly from where they were during the pandemic. When it comes to something as abstract as a mortgage rate, how high is actually high? How low is low? Even with the recent increases, you might be surprised to know that mortgages today are actually right around the historical average.  For this article, we’ll take a look back at the rise and fall of mortgage rates over the years, discussing the literal highs and lows of our timeline, then a look at where we are currently. Lastly, we’ll talk about refinancing, and how the current mortgage rate doesn’t always tell the whole story. With that in mind, let’s dive in.

What is the historical average? 

Freddie Mac first started keeping detailed records of mortgage rates on a weekly basis in 1971. It is from this record that we are able to speak to specific dates and the rates that were available at that time.  Based on the mortgage data taken from the last fifty-two years, the average mortgage rate is: 7.74%. This will give us a baseline for the mortgage rates that follow. Also, for this look back, we’ll be using the 30-year fixed rate mortgage so that we have an apples-to-apples comparison.

The lowest rate 

Now that we know the historical average, what week were interest rates at their lowest? A surprise to no one, this came during the pandemic. With so many people in the workforce sheltering in place, the economy took a downturn. In an attempt to stimulate the economy, and encourage people to make large purchases that would require a loan, the FED lowered interest rates.  This culminated in the rates for a 30-year fixed-rate mortgage hitting 2.65% during the week of January 7–13, 2021. So, if you locked in your rate just as Mariah Carey’s “All I Want for Christmas Is You” was leaving the #1 spot on the charts that year (it’s true, you can find that here), you likely got the lowest of the low interest rates.

The highest rate

Conversely, the highest mortgage rate in history arrived in the early ’80s. It should be said that mortgage rates do not directly correlate with the economy of the time, but it is difficult to separate them. Today, we might think of interest rates as being an inverse to the health of the economy. The lower they are, such as in our example above, the worse off we are economically. A higher interest rate might not always show a strong economy, but does often show an attempt to curb inflation, such as the current actions of the FED.

The same was not true when the highest of the highs arrived. Inflation skyrocketed across the board in the wake of the second oil crisis of 1979. Mortgage rates were no different. The week of October 9–15, 1981, the interest rate continued to climb, ballooning up to 18.63%!  If “Endless Love,” the duet between musical legends Diana Ross and Lionel Richie, was playing on the radio when you were closing on your loan – ouch. Thankfully, in early December of that year, interest rates had come down by 1.73% to 16.9%, likely causing a wave of refinances on recent mortgages. More on that in a moment.

Where we are now 

So, that’s a look at the top highs and lows, but that naturally leads to the question: Where are we now? As of the time of this writing, mortgage rates sit at 6.96%*. Obviously that’s a far cry from where we were a little over two years ago, but it is light-years away from the rates in October of 1981. The current rate is far closer to the low end than it is to the high end.  Notably, the current rate is also under the historical average. If the FED goes ahead with raising rates later this year, as they’ve indicated that they will, we could see rates hovering closer to the historical average.  (Also, to complete the musical comparison from above, the #1 song at the time of this writing is “Last Night” by country music star, Morgan Wallen.)

Dating the Rate 

If there’s one certainty when it comes to mortgage rates, it’s that they will change. Whether up or down, rates are always in motion; they rarely if ever sit still for very long. If you are thinking of buying a home, but are put off by the current housing market conditions, don’t let rates stop you from enjoying all the benefits of homeownership.  Remember, you always have the option of refinancing once rates are more advantageous to you. Usually, that’s about 0.5% to a full percentage point below the rate at which your loan closed. Even though that might not seem like a lot at first glance, it can add up to significant savings over the life of your loan, especially with a 30-year mortgage.  This option to refinance has led to the saying, “Date the rate, but marry the home.” In today’s housing market, those are definitely words to live by.

Conclusions 

Owning a home is all about the long game. Building equity takes time, attention and patience. The same is true of getting the best rate you can, either initially or through a refinance later on. If our discussion here has shown us anything, it’s that rates will eventually go down. So, it becomes a matter of owning a home so that you can ride that downward trend when it finally arrives.  A study of interest rates comes down to this: Don’t let a temporary rate make the choice for you. Interest rates should never keep you from getting the home you really want.

If you have questions about obtaining a mortgage and want to know all your options, our Finance partners are here to help you navigate your way.  Contact us today.