After four aggressive rate hikes, the Federal Reserve raised a key interest rate just one-half a percentage point Wednesday. New data showing that inflation continues to decelerate likely played into the central bankers’ decision.
This announcement puts the federal funds rate at a range of 4.25% to 4.5%. Interest rates on consumer products, like home equity lines of credit, will increase in response. But given that many lenders have already priced in a 50-basis-point rate hike, mortgage interest rates might not head much higher based on this Fed move.
Potential for muted impact on mortgage rates
Experts are mixed on how much higher mortgage rates could go in 2023. “We expect mortgage rates to rise back above 7% for the first part of the year, and then decline as the economy slows,” Robert Frick, corporate economist for Navy Federal Credit Union, said in an email.
Others think the days of 7% interest rates for 30-year fixed-rate loans are in the rearview mirror. Mortgage rates “may have peaked,” Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors, commented via email. “Rates are still more than double those of a year ago, but if inflation continues to slow down, rates may stabilize near 6%.”
The good news? Though it will likely take time, the consensus is that rates will eventually go down. That would be a welcome shift for home buyers priced out of the market by rising interest rates. In October, despite a slight drop in home prices, the monthly principal and interest payment on a median-priced home topped $2,000, according to data from the National Association of Realtors, or NAR. That’s beyond the reach of a household earning the median income and over $800 more than one year prior. Lower rates would help buyers’ budgets go further.
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Experts are mixed on how much higher mortgage interest rates could go in 2023.
Home prices fall but don’t crash
Sustained high prices haven’t helped home affordability, but there could be hope on that front. October’s median existing home price was $379,100, a slight decrease from September, according to the NAR, though housing prices remain up year over year.
“Home price increases have started to decelerate, and prices will likely drop overall next year,” Frick said. “But drops will vary greatly by market, with many markets that have seen the highest appreciation experiencing the greatest declines.” Housing prices have increased so much in the past few years that “giving up 5% or even 10% overall is not a big drop,” Frick added.
But these days, some homeowners find themselves in “golden handcuffs,” reluctant to sign up for a new mortgage with a significantly higher interest rate. “People who just want to move really aren’t moving,” says Melissa Cohn, a New York City-based regional vice president at William Raveis Mortgage. She observes that most sellers are experiencing a financial change or life event that compels them to move. A limited inventory of homes for sale will likely create a floor for how far prices can fall, with demand exceeding supply.
What this means for home buyers
While experts predict mortgage rates will eventually decline in 2023, the Fed isn’t done raising rates. Though these may taper to 25 basis points, until the central bankers genuinely believe inflation is slowing, interest rates should remain elevated.
Unless the economy takes a sharp turn into a recession, which would force the Fed to back off. That would be bad news overall but potentially good news for mortgage rates. Without the Fed’s upward pressure, rates could meaningfully fall.
However they happen, lower interest rates could be the key to getting the housing market moving again. And while inventory might not increase enough to create competition among sellers, at minimum, buyers would have more options — because there’d be more homes for sale and paying less interest would give their budgets more leeway.
While these major forces shape the housing market, they probably don’t determine whether you’ll buy or sell in the coming year. “Focusing on your own situation and what you can afford is the best strategy,” Frick said. “If you think home prices and rates are too high now, waiting for both to drop may be your best bet.”
Your goals and employment outlook should matter more than what the Fed does.
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How mortgage rates have changed since 1972
Spencer Weiner/Los Angeles Times // Getty Images
Unless you plan on purchasing real estate with an all-cash offer, you’ll likely be taking out a mortgage loan. It’s never a bad idea to be aware of mortgage rates, which can be ever-changing due to various factors—inflation, economic growth, Federal Reserve policies, the bond market, and relevant housing market conditions, among them.
Extra Space Storage, a U.S. real estate storage owner and operator, examined historical mortgage data from federal loan purchaser Freddie Mac to find the average annual rate for a 30-year fixed-rate home loan, with data dating back to 1972.
A fixed-rate mortgage is a home loan that has a set interest rate for the entire lifetime of the loan. Typically, you’ll see 30- or 15-year fixed mortgage loans; the former mortgages are the most common type with about 90% of homebuyers using one in their home purchase.Â
Mortgage rates were highest in the 1980s when the Fed raised interest rates to combat inflation. Today, economic uncertainty and inflation are behind rising mortgage rates. As of May 2022, the 30-year fixed mortgage rate sits at 5.25% while the average 15-year fixed mortgage rate is 4.43%. So, what were they like 5 to 10 years ago? Keep reading to see how mortgage rates have changed since the early ’70s.
Spencer Weiner/Los Angeles Times // Getty Images
Unless you plan on purchasing real estate with an all-cash offer, you’ll likely be taking out a mortgage loan. It’s never a bad idea to be aware of mortgage rates, which can be ever-changing due to various factors—inflation, economic growth, Federal Reserve policies, the bond market, and relevant housing market conditions, among them.
Extra Space Storage, a U.S. real estate storage owner and operator, examined historical mortgage data from federal loan purchaser Freddie Mac to find the average annual rate for a 30-year fixed-rate home loan, with data dating back to 1972.
A fixed-rate mortgage is a home loan that has a set interest rate for the entire lifetime of the loan. Typically, you’ll see 30- or 15-year fixed mortgage loans; the former mortgages are the most common type with about 90% of homebuyers using one in their home purchase.Â
Mortgage rates were highest in the 1980s when the Fed raised interest rates to combat inflation. Today, economic uncertainty and inflation are behind rising mortgage rates. As of May 2022, the 30-year fixed mortgage rate sits at 5.25% while the average 15-year fixed mortgage rate is 4.43%. So, what were they like 5 to 10 years ago? Keep reading to see how mortgage rates have changed since the early ’70s.
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How mortgage rates have changed since 1972
Extra Space Storage
For the first time in over a decade, mortgage rates have increased. In April 2022, 30-year fixed mortgage rates rose above 5%. After dropping to historic lows during the height of the COVID-19 lockdowns—when the rate hovered at 3.2%—this upward trajectory has dampened many would-be buyers’ enthusiasm. However, mortgage rates are now relatively low in comparison to the historical average of around 8%. The early 1980s set records for the highest mortgage rates, jumping above a staggering 16%.
Extra Space Storage
For the first time in over a decade, mortgage rates have increased. In April 2022, 30-year fixed mortgage rates rose above 5%. After dropping to historic lows during the height of the COVID-19 lockdowns—when the rate hovered at 3.2%—this upward trajectory has dampened many would-be buyers’ enthusiasm. However, mortgage rates are now relatively low in comparison to the historical average of around 8%. The early 1980s set records for the highest mortgage rates, jumping above a staggering 16%.
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How mortgage rates have changed since 1972
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 9.03%
During the 1970s, the Great Inflation was to blame for rising mortgage rates. Among the contributing factors included Keynesian economic policy, central bank policy, market psychology, and the abandonment of the gold window during the Nixon administration, when it was decided the U.S. government would no longer redeem dollars for gold from foreign banks. This decade led to some of the highest inflation rates seen in U.S. history. The stock market spiraled into a bear market, losing half of its valuation over a 20-month timeframe. Economic growth stalled into stagflation, which combines high inflation with spiking unemployment rates, causing a sharp decline in U.S. industries like automaking.
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 9.03%
During the 1970s, the Great Inflation was to blame for rising mortgage rates. Among the contributing factors included Keynesian economic policy, central bank policy, market psychology, and the abandonment of the gold window during the Nixon administration, when it was decided the U.S. government would no longer redeem dollars for gold from foreign banks. This decade led to some of the highest inflation rates seen in U.S. history. The stock market spiraled into a bear market, losing half of its valuation over a 20-month timeframe. Economic growth stalled into stagflation, which combines high inflation with spiking unemployment rates, causing a sharp decline in U.S. industries like automaking.
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How mortgage rates have changed since 1972
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 12.70%
An oil embargo following the Arab-Israeli War of 1973 worsened the inflation of the ’70s, pushing the U.S. into a recession. Prices of goods and services grew rapidly, which was an effect of severe inflation. The Federal Reserve raised interest rates in an attempt to combat the effects of this hyperinflation; this caused the cost of borrowing money to remain higher. The early 1980s saw some of the highest interest rates on record. In 1981, the average 30-year fixed mortgage rate was a whopping 16.63%.
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 12.70%
An oil embargo following the Arab-Israeli War of 1973 worsened the inflation of the ’70s, pushing the U.S. into a recession. Prices of goods and services grew rapidly, which was an effect of severe inflation. The Federal Reserve raised interest rates in an attempt to combat the effects of this hyperinflation; this caused the cost of borrowing money to remain higher. The early 1980s saw some of the highest interest rates on record. In 1981, the average 30-year fixed mortgage rate was a whopping 16.63%.
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How mortgage rates have changed since 1972
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 8.12%
In comparison to the previous two decades, the 1990s allowed for a great moderation in interest rates accompanied by growth, as the baby boomers entered their peak earning years. Inflation declined from over 10% in 1990 to below 7% in 1998—incidentally the last year the federal government enjoyed a budget surplus. In the latter half of the 1990s, information technology and the nascent internet drove productivity growth. Investments were made in newer technologies, such as laptop computers and cellphones. With the advent of the internet came increased e-commerce through future behemoths like Amazon, as well as the first telecommuters.
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 8.12%
In comparison to the previous two decades, the 1990s allowed for a great moderation in interest rates accompanied by growth, as the baby boomers entered their peak earning years. Inflation declined from over 10% in 1990 to below 7% in 1998—incidentally the last year the federal government enjoyed a budget surplus. In the latter half of the 1990s, information technology and the nascent internet drove productivity growth. Investments were made in newer technologies, such as laptop computers and cellphones. With the advent of the internet came increased e-commerce through future behemoths like Amazon, as well as the first telecommuters.
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How mortgage rates have changed since 1972
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 6.29%
Thirty-year fixed mortgage rates showed a continual decrease during the 2000s, going from above 10% to the 5% range in just the first three years. Despite this, the 2000s faced its fair share of economic challenges.
The 2003 invasion of Iraq drove up the price of oil. The rise of India, China, and other Asian economies raised energy prices and boosted industrial metals to 2008 highs. The Great Recession that followed extended from 2007 to 2009 and is known historically as the most severe downturn since the Great Depression of the 1930s. The unprecedented fiscal, monetary, and regulatory stimulus was implemented first by the administration of George Bush and then Barack Obama. This occurred after the 2000s housing bubble led to the subprime crisis of 2007, when many borrowers could no longer service their mortgages.
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 6.29%
Thirty-year fixed mortgage rates showed a continual decrease during the 2000s, going from above 10% to the 5% range in just the first three years. Despite this, the 2000s faced its fair share of economic challenges.
The 2003 invasion of Iraq drove up the price of oil. The rise of India, China, and other Asian economies raised energy prices and boosted industrial metals to 2008 highs. The Great Recession that followed extended from 2007 to 2009 and is known historically as the most severe downturn since the Great Depression of the 1930s. The unprecedented fiscal, monetary, and regulatory stimulus was implemented first by the administration of George Bush and then Barack Obama. This occurred after the 2000s housing bubble led to the subprime crisis of 2007, when many borrowers could no longer service their mortgages.
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How mortgage rates have changed since 1972
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 4.08%
2010 marked a slow recovery, following the Great Recession. Over the last decade, there have been ups and downs, but nothing has rattled the economy like the 2020 coronavirus pandemic. According to Forbes, by boosting remote work, COVID-19 has changed the housing market forever—and the Fed responded by resetting interest rates. The 2021 average 30-year fixed mortgage rate drastically fell to 2.96%, the lowest on record.
This story originally appeared on Extra Space Storage and was produced and distributed in partnership with Stacker Studio.
Extra Space Storage
- Average 30-year fixed mortgage rate over the decade: 4.08%
2010 marked a slow recovery, following the Great Recession. Over the last decade, there have been ups and downs, but nothing has rattled the economy like the 2020 coronavirus pandemic. According to Forbes, by boosting remote work, COVID-19 has changed the housing market forever—and the Fed responded by resetting interest rates. The 2021 average 30-year fixed mortgage rate drastically fell to 2.96%, the lowest on record.
This story originally appeared on Extra Space Storage and was produced and distributed in partnership with Stacker Studio.
