What is going to happen to mortgage rates in the next few years?
That is a question on everyone’s mind, especially those who are looking to buy a home right now. Mortgage rates have doubled since their low point. Today, the average 30-year fixed-rate mortgage is sitting at 5.20%. This time last year, the average was 2.96%. This is causing many potential home buyers to take a step back and wait.
If you take a look at the chart below, you will see that the average interest rate today is still historically low. In the early 90s we saw rates in the 9s, in the 2000s we saw 7s and the rates today are in line with what we saw in 2009-2010. The 2s that we saw the last two years were an anomaly.
We believe that the initial rate shock that we are all feeling today will wear off soon. People will start to understand that a 5% interest rate is now the norm.
We are in a very tough situation right now with inflation. The Federal Reserve is trying to curb that problem by raising their Fed Funds Rate. Raising this rate helps put a stop the economy – making people’s spending habits change. Inflation, in theory, will subside.
The Federal Reserve has plans to hike their Fed Funds Rate many times this year. This will impact spending but it also will impact mortgage rates. Typically, when the Fed Funds Rate is increased, mortgage rates go down. The chart below outlines this comparing it to the 30-year fixed-rate.
If the Federal Reserve continues to raise the Fed Funds Rate, then the economy may head into a recession and mortgage rates will stabilize. Historically, when we are in an economic recession, mortgage rates decline. We believe that with this market, housing will remain strong and people will still want to buy homes.
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