If you are on the hunt for a new home this year, chances are you are keeping a close eye on mortgage rates. It is no secret that mortgage rates wield a significant influence on what you can afford when embarking on the journey of homeownership. Given the ongoing challenge of affordability in today's housing market, it is an opportune moment to delve into the broader context of mortgage rates. Let's take a journey through their historical trajectory, compare them to today's rates, and peek into the crystal ball to speculate on their possible future.
Putting Today's Rates in Perspective
Since April 1971, Freddie Mac has been diligently tracking the 30-year fixed mortgage rate. Each week, they unveil the findings of their Primary Mortgage Market Survey, a compilation of mortgage application data from lenders across the nation. Over the past year, mortgage rates have seen a notable upswing. However, even with this uptick, today's rates remain beneath the 52-year average. While this historical benchmark provides essential context, prospective homebuyers have grown accustomed to mortgage rates in the range of 3% to 5% over the past 15 years.
This context is crucial in understanding why the recent surge in rates may trigger a sense of sticker shock, despite them hovering near their long-term average. Many homebuyers have adapted to these slightly elevated rates during the past year, but a slight dip in rates would undoubtedly be a welcome sight. To gauge the feasibility of such a scenario, we must turn our attention to inflation.
The Intricate Dance of Mortgage Rates and Inflation
Since early 2022, the Federal Reserve has been diligently combatting inflation. This is a noteworthy development because history has shown a compelling link between inflation and mortgage rates. Typically, when inflation undergoes significant movements, mortgage rates tend to follow suit shortly thereafter. If historical trends hold true, the market is likely anticipating a correlation between declining inflation and a subsequent drop in mortgage rates. Predicting the exact trajectory of mortgage rates remains a challenging task, but the reduction in inflation suggests that the future might hold positive news for both mortgage rates and your homeownership aspirations.
To gain insight into the potential trajectory of mortgage rates, it is valuable to examine their historical path. The undeniable connection between inflation and mortgage rates highlights the importance of monitoring economic factors. If past patterns serve as a guide, the recent downturn in inflation could bode well for the future of mortgage rates and, in turn, your dreams of homeownership.
