Interest rates, and especially mortgage rates, reflect the economy, as well as consumers’ collective optimism or pessimism. Baby Boomers’ parents lived in post-WWII prosperity when mortgage rates were around 5% - 6%. As Baby Boomers grew into adulthood, we wanted our parents’ mortgage rates, but instead, rates skyrocketed, due to poor economic and foreign policies.
Throughout the 1980s and 1990s, the American economy steadily improved, as policy was re-oriented toward free markets. But mortgage rates were, by today’s standards, high. Two decades of lower taxes, coupled with the introduction of household Internet service, begot a period of falling mortgage rates, from a 1981 high of 16.63% to about 7.4% by 1999. This slide provided substantial relief from the 1970s, a decade of malaise, energy shortages, hostages, high inflation, and steep mortgage rates.
During the first decade of the 21st Century, mortgage rates started to fall gradually in the aftermath of the terrorist attacks on September 11, 2001. After the initial shock and response to 9/11, Americans regained confidence, and the economy grew. Mortgage rates stabilized in the 6% to 7% range.
In the wake of the 2008 Financial Crisis (remember the “real estate bubble?”), mortgage rates fell sharply, resulting in an all-time low of 2.96% in January 2021, as COVID-related policies upset almost everything, economically and socially. Nice mortgage rates, but not a good time in America’s financial history.
Where are we going with this? During the best economic times in America, rates tended toward 6% - 7%, and the balance between housing demand and supply remained close. Anyone of sufficient age and experience likely remembers these periods fondly. Looking at a chart of historical interest rates is like a trip down Memory Lane. Times of very high rates, as well as times of very low rates, were reflective of problematic periods. Mortgage rates of 6% to 7% generally represented stability.
And yet, although rates are in that range today, today’s bad economic policy indicates that we are in for a rough ride, regarding the current mortgage rate environment.
While current mortgage rates resemble those during America’s best decades, our economy is not stable enough (read: inflation, CPI, and consumer confidence) to support economic stability. Waiting for a return to 3% mortgage rates may be the wrong strategy. Always remember that mortgages can be refinanced when conditions improve, and rates fall.
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