I know I’ve brought up this subject in a few of my past blogs, but just to close the book on this matter, I wanted to give you a little perspective on today’s 30-year fixed mortgage rate compared to those of years’ past. As we all know, yes, rates are up – slightly – from the historically low number many people got used to seeing. When rates hover in the low 3 percent range for some time, it’s easy to take them for granted, assuming good times will always last.
We all know what happens to assumptions, and to good times. They both must come to an end. In fact, the “good time” associated with the record-low mortgage rate of 3.31 percent in late 2012 was inspired by a particularly terrible time, the Great Recession. The subprime mortgage crisis and economic downturn that began in late 2007 and 2008 took us all for a ride. No industry was arguably hit harder than the mortgage industry.
If you were in the business during this time, as I was, you learned a lot. And kudos to you for sticking with your passion and skills when a great many mortgage bankers jumped ship, with confidence in themselves and the industry at all-time lows. This historic rate was great for borrowers who could afford to buy a home and jump through the significantly stricter lending hoops that came with it.
The fact that the Fed is gaining confidence in the U.S. housing market, the economy in general and consumer spending is a good thing! Yes, it may mean borrowers have to pay slightly more for their loan, but it tells the American people we’re on stable ground and we don’t have to have a fire sale just to keep our heads above water.
Think about it this way: what is a retailer saying when it slashes storewide prices by 60 percent (over a longer period of time than just a semi-annual sale)? It’s saying “we’re in trouble.” Maybe a bankruptcy is looming, maybe they’re downsizing their inventory or store space or maybe they’re going out of business. In any case, the message is “we are not confident enough in some aspect of our business, the economy or our consumers to offer this merchandise at full value.”
Rates sat at 6.7 percent in July 2007 right as the housing bubble was reaching its maximum capacity. Rates even went as high as 18 percent in October 1981 when the Fed was trying to combat inflation. In fact, if you were a buyer anytime in the ‘90s, you were still looking at a rate in the low 7 percent range at best and, at worst, a rate of more than 10 percent. While we still may be a couple minor digits off from the 3.31 percent low seen as the economy was just beginning to recover, it’s hard to argue that the current 3.87 percent is unreasonable for homebuyers.
I encourage you to keep these historical figures in perspective as you help your clients navigate through the current housing cycle. After all, the strength of this market does leave a lot to be thankful for.