The past couple of years has been nothing short of unpredictable, thanks to the effects of a global pandemic that persisted longer than most believed possible. Fortunately, as vaccinations continue and covid-related hospitalizations decline in most areas, life as we knew it before 2020 is slowly returning.
Unfortunately, the rebounding economy has been tainted by rising inflation, as is historically typical, which has triggered the Federal Reserve to raise interest rates to prevent further inflation – a move that affects mortgage rates. This activity pushed mortgage rates to a decade-high in mid-April. The big question now is how much more will mortgage rates increase this year?
How High is High?
First, it’s critical to review a bit of mortgage education to demonstrate why today’s 30-year mortgage rates are still historically low despite an upward trend. For example, between April 1971 and December 2020, 30-year mortgage rates averaged 7.89%. Yet, between January and December 2021, they averaged 2.96%. So even if mortgage rates continue to rise, we are far from the historical average and nowhere near the all-time high of 18.63% in October 1981.
U.S. mortgage interest rates fell to record lows in 2020 and 2021 as the Federal Reserve pushed emergency actions in response to a stalling Covid-19 economy, causing mortgage rates to hit a record low, below 3%. The lower rates sent homebuyers and homeowners into a frenzy, as they sought to take advantage of the low rates and purchase or refinance a home.
However, the rebounding economy has pushed mortgage rates up – reaching 5.11% on April 21, 2022 – begging the question: will the upward trend continue?
Rates Likely to Keep Rising
The answer is yes, likely so. The Fed has signaled plans to raise interest rates perhaps as many as four to five more times before year’s end. However, historically speaking, we’re still sitting relatively low at around 5%. So don’t wait on lower 30-year interest rates. Although they could still fall short for periods, we’re likely to continue to see an overall upward trend for the remainder of 2022.
Less Competition for Higher-Priced Homes
Mortgage rates are not the only rising costs in the real estate industry. Home prices have hit historic highs, as well. As interest rates continue to increase, many homebuyers will need to reassess their home buying budget, subsequently narrowing the market for higher-priced homes. If you are curious about what kind of house you can afford at today’s interest rates, online tools like this 30 year mortgage calculator can help.
Higher Rates Could Counter Housing Crunch
If mortgage rates continue to climb, less affordability may diminish the current housing crunch. Home prices nationwide have hit record highs as demand continued amid a record low housing supply. For example, according to Realtor.com, the median home price exceeded $400,000 for the first time ever in March 2022. Although historically high prices and rising interest rates will likely push buyers out of the affordability range, it can also deter current homeowners from selling for the same reason, thereby lowering demand a bit.
Despite predictions around rising mortgage rates, they are still low from a historical standpoint. It’s essential to keep your options open and review the numbers to see what kind of mortgage loan will work. For example, shorter loan terms afford lower interest rates. It’s always wise to look at your options from multiple angles. For example, shorter loan terms (typically) afford lower interest rates. You can access online tools like this 15 year mortgage calculator to explore what your financial situation affords.
However unpredictable the real estate market may be, it’s always a good idea to explore your options. Directors Mortgage is a local lender with branch locations in Oregon and across the Western USA. We focus on providing service with a personal touch by listening to your needs and creating customized solutions using our robust portfolio of lending options.
At Directors Mortgage, our goal is to simplify the application process to help our communities realize their homeownership dreams. We don’t just do business in your area—we live here. Ready to strengthen your mortgage education and learn mortgage like a pro – with the help of local specialists you can trust? Take advantage of the numerous complimentary resources on our website, we’re always here to help!
Ready to apply? Visit links.directorsmortgage.com/apply and get the process started today.