It’s so sad when eras end. We had the end of the hard-wired phone and even though you can still have one, no one will admit it. We had the end of the standard-shift car. The end of the manual typewriter – ask a 12-year-old what that was – and now we have the end of the ultra-low mortgage rates.
About a month ago, the Federal Reserve voted to lift interest rates. In addition, they sent the message that they would have six more increases by year’s end. This is the most aggressive increase in more than 15 years, all geared to slow inflation.
And the feds weren’t kidding. Recently, a 30-year, fixed-rate home loan edged higher to 4.72% from 4.67% a week earlier and now stands at 5%. Freddie Mac said these weekly figures were the highest since December 2018.
Over the past three months, the rate has increased by 1.5%, the quickest three-month increase since May of 1994. At the start of this year, the rate for the typical home loan was 3.22% with a record low of 2.65% in January. For half of 2021, the rate remained under 3%.
Unfortunately, these rate increases translate into real money for potential home buyers, especially those on the margin. Assuming a 4% mortgage rate – which you can’t even get now – a $375,000 home with an interest rate of 4% has a monthly mortgage payment $220. This is higher than the payment on a similar-priced home would have been in December 2020 when the rates were near record lows.
Lawrence Yun, chief economist for the National Association of Realtors, said buyers are not giving up and they believe rising interest rates could be the last chance to get in the market. Nevertheless, higher rates eventually could lead to a 10% decline in home sales this year compared to 2021. We’re already seeing this in our local market based on February’s Manatee County sales statistics. He also points out, however, that a low supply of homes does not mean a decline in housing prices. Sale prices will likely continue to increase, responding to the lack of inventory.
Several months ago, I did some research on Freddie Mac’s website, where they listed the average mortgage rates starting in 1972. At that time, I pointed out that what we’re experiencing now is not only historically low, it never happened before 2012, when the rates started dipping below 4%.
The point I’m making is things really aren’t that bad. It may look terrible to 30-somethings, but maybe they should have a conversation with their parents or grandparents who were living through 13% and 16% rates in the early 80s. Of course, nobody wants to go back to that, but I think the Feds have their eye on 6% before they’re done. Let’s hope it levels off at that point, but who knows?
Out of all the ends of eras I’ve experienced in my life, the one I don’t miss is the end of poodle skirts. But the poodles don’t compare to what we’re going through now, something that affects every homeowner in the country and those who want to be homeowners. We’re not even close to being done according to the Federal Reserve – the end of another era.
