Andrew Darda
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Mike Darda
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History Demonstrates Why Today's Mortgage Rates Are Still So Attractive

Thursday, December 01, 2016

We hope you had a great Thanksgiving. Can it really be a week already!

It's been an interesting seven day period for mortgage rates, which have averaged 4.08% for a 30 year fixed rate home loan during the past week.

This has led to all kinds of press speculation about where the real estate market is headed, some of it pretty unrealistic and doom laden.

The key issue is that, as an industry and as buyers and/or sellers, we've all gotten very used to sub 4% rates, and we've even seen dips below 3.5% for a 30-year loan in recent months.

This has essentially distorted everyone's view of the market and, especially because we've been in this business a long time and have good memories, we thought it would be useful right now to take a trip back in time and put today's rates in a wider historic perspective.

Our first port of call was the Freddie Mac website which contains an extremely enlightening chart of annual averages for 30 year fixed rate borrowing - click here to see it for yourself.

We firstly decided to note down the average 30-year rates for the past 10 complete years:

2006 - 6.41%
2007 - 6.34%
2008 - 6.03%
2009 - 5.04%
2010 - 4.69%
2011 - 4.45%
2012 - 3.66%
2013 - 3.98%
2014 - 4.17%
2015 - 3.85%

We can immediately see that in 2014, a very successful year for home selling and buying, the average rate was somewhat higher than it currently is. These averages amply demonstrate that, while it's clearly disappointing that rates have risen, they still offer tremendous value and compare very favorably with other boom years like 2006's 6.41%.

And that year of 2006 brings about another relevant perspective for us. The latest Standard & Poor’s CoreLogic Case-Shiller national home price index, released yesterday, is slightly above the peak it reached prior to recession in July 2006, rising 5.5% between September 2016 and September 2015. In other words, this is a great market to be in and we still have mortgage rates far lower than in 2006.

It's also worth reminding ourselves at this point that, at an average of 4.08% in the past week, rates still have somewhere to go to match the predictions of many experts who, at around this time last year, were anticipating progressive rate rises in 2016 to between 4.5% and 4.65%. With just 30 days left, reaching those heights is not looking very likely.

There's a very strong argument to suggest that where we're seeing rates at the moment simply represents a market correction from what have been some staggeringly low figures in recent times, by any historic measure. It's a correction that was always likely to happen, but no-one knew when. As it turns out, stock market confidence after the election made bonds less attractive and caused mortgage rates, which are closely allied to the fortunes of bonds, to begin a climb.

While we were looking at the Freddie Mac average interest rate chart, we couldn't resist going even further back in time to between 1996 and 2005 when the 30 year average was 6.889%. There was no sign of 4.08% average rates back then, as the yearly breakdown of averages proves:

2005 - 5.87%
2004 - 5.84%
2003 - 5.83%
2002 - 6.54%
2001 - 6.97%
2000 - 8.05%
1999 - 7.44%
1998 - 6.94%
1997 - 7.6%
1996 - 7.81%

Perhaps what we most need to remember at the moment is that rate increases are a pretty direct result of less risk aversion and more confidence in the economy moving forward. Those headlines predicting some sort of real estate crash are failing to factor in this vital, and very positive, consideration at all.

As we reported in last week's blog, some buyers are taking the position that locking in rates now makes sense in case they should move higher. No one knows what will actually happen, of course, but we hope that by giving you a wider historic picture you'll be able to see that today's mortgage rates still represent the most incredible value and a truly wonderful opportunity.

Why not contact us today for tailored and expert advice on making the very best of the current situation.

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