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Outlook on Mortgage Interest Rates

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Interest rates are at a record low in 2021 following the COVID crisis of 2020. This led to a surge in home purchases last year, and a hot real estate market this year, leaving everyone wondering – will these low interest rates continue? What does this mean for the market?

Tracking Mortgage Rates Through History

Interest rates have been steadily dropping for quite some time, but have not dipped this low in the past 50 years. Mortgage rates hit an all time high in the 80’s, reaching almost 20%! Since then, the numbers have been on the decline, with the 2008 housing crisis causing an even further dip downwards. Interest rates are now at an all time low level of 2.96%, pushing demand for homes upwards.

Why the Low Rates?

This year, the low interest rates are due largely to the Federal Reserve’s decision to slash interest rates in an effort to boost economic growth following the financial crisis of COVID-19. With lending rates already on a sharp decline since their 10 year peak in 2018, this has allowed lenders to offer the lowest mortgages we’ve ever seen. 

Will We See an Increase in Rates?

Odds are we will see a slight increase in interest rates, though it likely won’t be significant. As the economic conditions within our nation improve, increased consumer spending and a rise in inflation might send interest rates upwards. However, there is no certainty that this might actually happen. Although things seem to be on the up at the present moment, we can’t be sure that there won’t be another spike in COVID, a new variant that sends us backward, or a hiccup in the vaccine rollout that halts progress. Most experts expect that while interest rates will rise – it won’t happen immediately.

How Will Increased Rates Affect The Housing Market?

Plummeting interest rates in 2020 led to eager buyers grabbing up as many good deals as they could find on the market, and allowed current homeowners to refinance for a better mortgage. We’ve hit a kink in the plan at this point, however. There is too much demand for homes, and not enough supply – the perfect recipe for a seller’s market and a buyer’s nightmare. Home prices are surging, and homes are going off the market practically as soon as the sign hits the front yard.

Many prospective buyers are hopeful that as interest rates rebound, home prices will go down as a consequence. Unfortunately, this doesn’t seem to be the case. This is good news for sellers, but bad news for buyers and investors. Home prices have consistently been on the rise since 1953 (with the exception of the 2008 recession) – and higher interest rates have not been able to stop this steady rise. 

A dramatic decrease in interest rates typically preludes an even more intense spike in home prices. This is what we have been seeing over the past year – as the housing market responds to record low interest rates and subsequent high demand, prices have surged. The good news is that home prices seem to increase at a slower pace when interest rates are on the rise. So, while we may not see a leveling off in the real estate market as interest rates rebound, it is likely that the speed at which these prices continue to surge will gradually slow down. Hopefully, this will give consumers an opportunity to snap up their dream home.

All in all, the outlook for mortgage rates seem to suggest a slow rise in rates that likely will not affect the market for quite some time. For those who still haven’t refinanced, now is the time! Take advantage of the low rates before they go back up. If you’re waiting to buy, be patient! While nothing short of a recession can keep home prices from rising (and home prices actually rose during 10 of the last 11 recessions), as interest rates go up the speed of the surge will slow.

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