Change is on the horizon. Last year, we felt the warm embrace of rock bottom interest rates. In an effort to stave off negative impacts from the coronavirus pandemic, the federal reserve slashed interest rates. In turn, this caused mortgage rates to fall throughout 2020. This resulted in mortgage rates hitting historic lows multiple times all the way through December. The precipitous decline of mortgage rates fueled demand from home buyers and caused the housing market to skyrocket. Unfortunately, it seems as if the era of historically low mortgage rates has come to an end. For the first time since July of 2020, mortgage rates climbed about 3%. Chances are very slim that rates will drop any lower and might actually increase. The team at Peoples Choice Mortgage is here to discuss what rising mortgage rates mean for homeowners and home buyers.  

Mortgage Rate Increases Were Expected

Although it might be a shock to see mortgage rates higher than 3%, it should not be. Many expected mortgage rates to rise slightly in 2021. Experts from all around the real estate industry expected these rate hikes. The forecasters at the Mortgage Brokers Association anticipated that rates would start to rise as we got deeper into 2021. The National Association of Realtors also anticipated that rates would rise. Part of this expectation was merely because rates cannot remain at historic lows forever. Another part had to do with a favorable economic outlook. 

The coronavirus pandemic devastated the economy. Fortunately, case numbers were dropping after the winter surge. At the same time, the rate of vaccinations was increasing dramatically. This gave hope that limits on gatherings and businesses would relax, allowing for a true economic recovery. As an economic rebound started to seem like more reality than wishful thinking, it was clear that interest rates would rise. Rates were slashed to keep the economy afloat during the pandemic. As is the case, it makes sense that rates would rise as the need to keep the economy afloat recedes. 

Don’t Fret Over Rising Mortgage Rates

Now that mortgage rates have moved on from historic lows, some of you are probably feeling a small sense of regret. Some of you might have been thinking about buying a new home, but haven’t. Others might have wanted to refinance your mortgage, but you haven’t. If you fall into either of these groups then you might be regretting not taking advantage of sub 3% mortgage rates. However, you have no reason to be consumed with regret and now is still a great time to buy a house or refinance your mortgage. While we may not see sub-3% rates again, today’s rates are still fantastic when you put them in historical perspective. 

The average mortgage rates offered by Freddie Mac over the past five years provides a great way to understand why today’s rates are still fantastic. Although mortgage rates hit historic lows in 2020, they were not less than 3% for most of the year. In fact, if you take the average of the mortgage rates offered by Freddie Mac during 2020, the average is actually 3.11%. This means that today’s rates are still lower than the 2020 average. Going back even further paints an even rosier picture of today’s rate landscape. In 2019, the average was 3.94%. In 2018, it was 4.54%. That is a huge difference from Freddie Mac’s rates of 3.02%.

When you go back even further to look at the yearly average of available mortgage rates, the value of today’s rates becomes even clearer. During the 2010s, the average mortgage rate was 4.09%. The previous decade, rates averaged 6.29%. If you go all the way back to the 1990s, mortgage rates averaged 8.12%. In the 1908s, mortgage rates averaged an eye-popping 12.7%. By almost every metric, we are still looking at rates that are far below the past 50 years. So, even though you missed out on buying a home or refinancing your mortgage at the lowest possible rates, you did not miss out completely. 

Furthermore, even though mortgage rates have increased, we do not expect them to rise much higher. Freddie Mac indicated that they do not anticipate many increases on their end through 2021 and expect a strong real estate market This is great news for everyone who still wants to buy a new house or refinance their home loan. 

Final Thoughts

Mortgage rates might be above 3% and will probably remain there for the foreseeable future, but that does not mean the era of good feelings is over. Today’s rate environment is still incredible from a historical perspective. Additionally, strong demand in today’s housing market means that if you buy a home today, you will still get the benefits of a strong real estate environment. The current housing supply is still limited and demand is still through the roof, which means that home prices and values will continue to increase. Buying a home today or refinancing at a lower rate will let you take advantage of the market and build equity in your home. This is a great opportunity to get the house of your dreams and build the wealth you desire. 

The bottom line is that it is not too late to benefit from today’s market. It is still a good time to purchase a home or refinance your mortgage. However, if you wait too long, that might not be the case. So, contact us today and let us help make your dream of owning a home a reality!