Mortgage rates: past, present, and possible future

You’re probably keeping an eye on mortgage rates if you’re planning to buy a house this year. Mortgage rates affect what you can afford to pay for a home loan, and affordability is a problem today. It’s time to take a look at where mortgage rates were historically compared to their current level. Freddie Mac has tracked the 30-year fixed rate mortgage since April 1971. They release their Primary Mortgage Market Survey every week, which averages data from mortgage lenders across the nation (see graph below). Even with this rise, rates today are still lower than the 52-year average. This historical perspective is important, but buyers have become accustomed to mortgage rates between 3 and 5% over the last 15 years. Although many buyers have adapted to the high rates over the last year, a lower rate would be welcome. Inflation is a good indicator of whether this is a realistic scenario. Since early 2022, the Federal Reserve has been working to reduce inflation. This is significant because historically, there has been a correlation between mortgage rates and inflation (see graph below). The graph on the left shows that when inflation increases (in blue), mortgage rate follows suit (in green). Mortgage rates have not yet followed inflation’s trend. If history is any indication, the market is still waiting for mortgage rates and inflation to go back down. Moderating inflation would indicate that mortgage rates are likely to go down in the near term. This is a trend that has been well-established. Bottom LineTo better understand where mortgage rates are headed, it is helpful to examine where they have been in the past. If the historical relationship between inflation and mortgage rate is true, then the recent decline in inflation could be good news for your future mortgage rates and homeownership goals.

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