Mortgage rates rose sharply in 2022. However, throughout history, mortgage rates have often been higher — sometimes much higher — than they are today. In 2020, mortgage rates decreased after the Federal Reserve decided to lower rates in response to COVID-19. Rates have risen slightly since then but are still near historic lows. The long-time average for 30-year mortgage rates is over 7%. So even though today’s mortgage rates are hovering around 5%, they’re still a good deal by comparison.

Mortgage Rates Chart For 2022

During the COVID-19 pandemic in 2020 – 2021, mortgage interest rates fell to all-time lows. The Federal Reserve took emergency actions to help push mortgage rates below 3% and keep them there. However, with inflation reaching four-decade highs, mortgage interest rates have been rising this year. More Federal regulation might drive them even higher. Those who can lock a rate sooner rather than later may be wise to act quickly.

Historical Mortgage Rates Chart
Historical Mortgage Rates Chart

Historical Mortgage Rates Chart

Despite recent increases, today’s 30-year mortgage rates are still below average by historical standards. Freddie Mac has been keeping records since 1971, and from April 1971 to June 2022, 30-year fixed-rate mortgages averaged 7.77%. Even with the 30-year FRM above 5%, today’s rates are still relatively cheap compared to previous mortgage rates.

Read more: How To Maximize Your Home Equity? Best Ways To Tap Into Your Home Equity.

The 1970s

Freddie Mac had access to reliable information on 30-year fixed-rate mortgage rates since 1971. Rates started at 7% in 1971 and gradually rose until they hit 9.19% in 1974. They fluctuated between the mid-8% and high-8% range before climbing to 11.20% during a time of significant inflation that peaked early in the following decade.

The 1980s

In the 1970s and 1980s, the United States went into recession due to an oil embargo imposed by the Organization of Petroleum Exporting Countries (OPEC). Hyperinflation resulted from this, causing prices for goods and services to skyrocket.

The Federal Reserve raised short-term interest rates to combat this hyperinflation, which made money in savings accounts more valuable. On the other hand, all interest rates increased, so borrowing money became more expensive.

According to the Freddie Mac data, interest rates approached their all-time peak in 1981, when the yearly average was 16.63%. Fixed rates fell from there but remained above ten throughout the decade. It was difficult to borrow money during the 1980s due to high-interest rates.

The 1990s

During the 1990s, inflation began to somewhat recede. By 1990, the average mortgage rate was 10.13%, but it gradually decreased until it hit 6.94% in 1998. According to a paper published by the Economic Policy Institute, one crucial reason for the economic growth and declining inflation that emerged later in the decade was the widespread takeover of the internet. The government invested more in the research and development of cutting-edge technologies, resulting in economic expansion.

The 2000s

Mortgage rates dropped from an average of 8.05% in 2000 to the upper 5% range by 2003. However, it wasn’t all rose-colored. The housing market collapse resulted from property values plummeting dramatically until they hit their lowest point in 2008. Many homeowners were left owing more on their houses than the properties were worth following this descent. To offer some comfort and stimulate the economy, the Federal Reserve lowered interest rates to make borrowing easier.

After an initial delay, the Federal Reserve announced a final interest rate cut from 0.25% to 0.00%. The Bank of England took the hint and cut its benchmark lending rate by 50 basis points, or one-half percent, to 5%, in August 2016. Since then, long-term rates have increased significantly above their figures before the recession. The 10-year Treasury yield is now at 2.43% after briefly dipping below 2% earlier this year (see Graph 1). This change has made borrowing money cheap for banks and caused mortgage rates to plummet almost a whole percentage point on average — to 5.04% in 2009 (see Graph 3).

The 2010s

Mortgage rates began the new decade at around 4.69%, riding the wave of cheap borrowing costs. They steadily fell throughout the decade and were in the mid-3% range by 2012. In 2013, mortgage rates rose to 3.98%. The market became a little jittery when the Federal Reserve announced that it would cease buying bonds.

The yields on mortgage bonds go up due to a scarcity of purchasers, which attracts buyers and leads to a rise in mortgage rates. In 2014, mortgage rates increased to 4.17%. Mortgage rates declined back to 3.85% in 2015 as the market settled down after being turbulent for several years.

Despite their higher start in 2016, rates ended at 3.65%. With worldwide uncertainty on the rise, investors sought refuge in the United States bond market to guarantee their asset stability.

After the 2016 presidential election, rates began to climb. They peaked at the end of 2018 and the beginning of 2019. The average rate on a 30-year fixed rate mortgage (FRM) was 3.95% on the low and 5.34% on the higher side.

The 2020s

According to Bankrate data, the 30-year fixed rate fell just under 3% in January 2020, with an average of 3.38% for the year. Fearful investors were drawn to safer products like Treasury and mortgage bonds, pushing yields and rates lower during the epidemic.

Rates began to rise again in 2021, but COVID-19 variants stopped them. That has not been the case so far in 2022. Mortgage rates have displayed the quickest and most enormous run-up in 28 years, with inflation hitting a 40-year high. The Federal Reserve is preparing to shift rapidly to a policy of tighter money and higher interest rates. 

Will Mortgage Rates Go Back Down?

Will Mortgage Rates Go Back Down
Will Mortgage Rates Go Back Down

Rates on 30-year fixed mortgages surged to the highest level since 2016 during the week of July 22 and then dropped quickly, leading many people to panic buy. Rates have continued to fluctuate in recent weeks due to this struggle. “Mortgage rates remained volatile owing to the tug of war between inflationary pressures and a clear economic slowdown,” Freddie Mac stated on August 4.

In other words, it’s almost impossible to predict what will happen to mortgage rates by the end of 2022. The Federal Reserve will likely continue raising interest rates, usually followed by higher mortgage rates. However, if the Fed’s actions cause a recession, mortgage interest rates may fall. As a borrower, it doesn’t make much sense to attempt to time your rate in this market. Our top advice is to purchase when you are financially stable and can afford the house you desire, regardless of current interest rates.

Remember that your mortgage rate isn’t set in stone. If interest rates drop substantially, homeowners may always refinance later to save money.

Are Houses Less Affordable Than They Were in Past Decades?

Other critical aspects of housing include the property’s monthly cost and the mortgage interest rate at the time of purchase. You’ve probably noticed more news stories about how buying a house is becoming increasingly difficult. The headlines are correct — it is less affordable to buy a home today than a year ago. However, it’s essential to consider the context. Is today’s house purchase less expensive than it was in 2005? What about 1995? What will happen if we go back to 1985? Or even 1975?

The cost of a house has skyrocketed in the last 45 years. So have the prices of milk, bread, and almost every other consumable item. Inflation occurs over time — as we all know. Furthermore, Freddie Mac‘s most recent statistics reveal that there have been only two times in the last 45 years (2010 and 2020), adjusting for inflation, that purchasing a home was less expensive than it is now. However, the previous years have stressed the significance of one’s house in a meaningful way. As a result of the COVID-10 pandemic, many individuals switched from renting to ownership. In contrast, others began reconsidering their present home and whether or not they should make a move to one that better fits their current living style and demands.

Why Are Homes So Affordable Today?

The one-two punch of historically cheap mortgage rates and increased demand has kept housing more affordable than it’s been in years. Although several variables influence the overall calculation, low mortgage rates play the most significant role today.

Of course, many people find homeownership frightening since it involves a significant investment with a down payment. But the fact is that today’s home purchases are typically less expensive than other kinds of investments in terms of the total cost.

When you include the purchase price of your property plus any down payment needed, including mortgage interest, property taxes, homeowners insurance, and any cash payments required at the beginning of the project, the cost of home ownership is often less than what many people believe. Furthermore, with a house, you get what you put into it. As a result, when you pay off your mortgage, your investment generally appreciates above what you paid for, becoming a nice safety net or asset.

Why Are Homes So Affordable Today
Why Are Homes So Affordable Today

Slower Home Price Growth

Home prices rose by nearly 20% last year, owing to a lack of supply and high demand. As rising rates make monthly mortgage payments less affordable, the rise in home prices might slow down. According to Taylor Marr, deputy chief economist at brokerage Redfin, there is a historical link between higher interest rates and reduced house price growth. When mortgage rates go up by 1%, the typical year sees a 5% decrease in a price increase.

Less Competition

Some potential homebuyers will be priced out of the market due to higher rates. It’s terrible news for those individuals but good news for those who remain in the market. According to Marr, the current monthly mortgage payment on a typical house is at an all-time high of $2,123. As rates continue their slower and steadier climb later this year, some buyers will have to take a step back.

More Housing Stock

When demand drops, houses stay on the market longer to allow inventory to build. The longer a home sits on the market, it’s less likely it will sell for its original list price, which is positive news for buyers. There were already indications of a minor improvement in housing supply when there was a smaller drop in active listings compared to last year. While no one expects a wave of homes to appear out of nowhere and fix the shortfall overnight, there are encouraging signals. 

Better Savings Rates

Home prices are not the only economic indicator that is increasing rapidly. Consumer price inflation reached 7.9%, the highest level in 40 years. The Ukraine conflict and subsequent sanctions against Russia can raise prices even more, especially since oil imports are already pushing gasoline costs up.

If you’re thinking of buying your first house or upgrading to the one you’ve always desired, it’s vital to understand how mortgage rates impact the overall cost of your property. With that in mind, purchasing while mortgage rates are as low as they are now may save you a significant amount of money over the life of your home loan.

What Is The Bottom Line?

Finally, if you want to buy a home, do not be dissuaded by the media’s reports on affordability. You won’t be able to get the same deal as your friend did last year, but you will obtain a better bargain than your parents or grandparents did 20 or 40 years ago. So, if you’re ready to purchase a house this summer or fall, you may save money based on historical affordability trends.

Do you have any questions about mortgage rates and loan facilities?  Leave a comment below or contact us for a free consultation.