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Are We Spoiled With Low Mortgage Rates?

Not only did our forebears have to walk to school in the snow uphill – both ways.

They also had to cope with mortgage rates that would seem outrageous to any modern buyer.

We were struck by that fact in a chart presented in the same forecast talk that we referenced here the other day, by Jordan Levine, the chief economist for the California Association of Realtors.

Here's one slide that he presented, with discussion below.

(We put our own headline on this, but the rest is Jordan's data.)

This chart shows 53 years' worth of mortgage rate data, using the rate for 30-year fixed mortgages.

The areas shaded dark grey were periods of time where rates exceeded the 53-year average of 6.77%.

That's a LOT of grey, meaning that rates in the 7s and higher – sometimes much higher – were more the norm for much of the past 50 years.

The red circles point out various recent crises that triggered aggressive action to reduce interest rates and, consequently, mortgage rates: The .com bust (was it a bust? discuss), the housing-led Great Recession of 2008 and then COVID-19.

Those three economic crises cleared away almost all the grey (in the chart) from the early 2000s forward, indicating that we've mostly seen rates below historical average in recent years.

The grey pops up again at the right edge of the chart. That means anyone shopping for rates in 2023 or so was finding rates that were consistent with the historical average, but still seemed yucky.

We decided to refigure some of the data and take a closer look at the past 25 years.

 

We parceled out the data from Oct. 1999-Oct. 2024, a full 25-year sample, and re-charted it here.

As noted above, for almost all of the time since late 2002, rates have stuck under that longer-term average of 6.77% (orange line).

We recalculated the average for this 25-year period, and it's far lower, at 5.16%. (See note at the bottom of this post about the source data.)

At least by these data, the typical 30-year was offered below that level from 2010 till Summer 2022. (A lot goes into what rates are actually offered, depending on loan amount, bank relationships, etc., so your experience may have varied.)

It's true, especially as you see Jordan's big red circles on downward inflection points for rates, that the last 25 years have seen some big events that caused interest rates generally to fall – and benefited home buyers as a result.

It's almost hard to believe that there was a time when mortgage rates hung in the teens – as they did in the late 70s and early 80s. How did anyone do anything way-back-then? People had to live with a rather nasty version of normal.

Now, we must say, what has driven interest rates, management of the economy, economic performance, government spending and that whole spectrum of issues is quite outside the scope of this little local real estate blog here.

But it seems fair to observe: It does feel like we've been babied a bit, when it comes to mortgage rates, for most of our adult lives.

Today's buyers know they missed out on 3% mortgages. People hated those 7-8% rates that we saw not so long ago. It almost felt morally offensive. ("Why do I have to pay triple what my neighbor paid!?!")

It seems like we're returning to something of an acceptable level of normal, which may brighten the mood.

In our post the other day, we noted stats showing that about 83% of current mortgages in California are held at a rate of 5.0% or lower. That fact can limit potential sellers' willingness to enter the market, if the difference between their current rate and the rates on offer for new mortgages is too great.

The outlook, per the CAR forecast, is for rates in the 5s soon, and ongoing for the next few years, all things being equal. 

All of this pours into how we might see the actual real estate market perform, as rates move and people adjust their thinking about what "normal" should be.

We asked a few lenders we know about today's rates. Below are some answers we got, in slightly different formats. (We'll update as more comes in.)

Lender 1

30yr Fixed: 6.250%

10yr I.O.:  6.000%

10yr I.O.: 5.500% w/ relationship ($1M on deposit)

Fee: 0 pts

Lender 2

Jumbo Loan (30 yr fixed)

With 20% Down:

0 points: 6.35%

1 point : 6.10%

With 25% Down:

0 points 6.25%

1 point: 5.80%

Non-Jumbo Loan (30 yr fixed, Loan Amt. < ~$1.200M)

0 points: 6.50%

1 point : 6.25%

------------------------------------------------------------------------

Nerdy note: Mortgage rate data is copyright Freddie Mac. Reprinted with permission.

Formal citation: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis:

https://fred.stlouisfed.org/series/MORTGAGE30US, October 11, 2024.


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Listings presented above are supplied via the MLS and are brokered by a variety of agents and firms, not Dave Fratello or Edge Real Estate Agency, unless so stated with the listing. Images and links to properties above lead to a full MLS display of information, including home details, lot size, all photos, and listing broker and agent information and contact information.

Based on information from California Regional Multiple Listing Service, Inc. as of November 12th, 2024 at 7:40am PST. This information is for your personal, non-commercial use and may not be used for any purpose other than to identify prospective properties you may be interested in purchasing. Display of MLS data is usually deemed reliable but is NOT guaranteed accurate by the MLS. Buyers are responsible for verifying the accuracy of all information and should investigate the data themselves or retain appropriate professionals. Information from sources other than the Listing Agent may have been included in the MLS data. Unless otherwise specified in writing, Broker/Agent has not and will not verify any information obtained from other sources. The Broker/Agent providing the information contained herein may or may not have been the Listing and/or Selling Agent.