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Mortgage Rates: Past, Present, and Possible Future

If you're considering buying a home this year, closely monitoring mortgage rates is likely a priority. Mortgage rates play a crucial role in determining what you can afford when taking out a home loan, and given current affordability challenges, it's an opportune time to examine the broader context of mortgage rates. Understanding their historical patterns and their connection with inflation can provide insights into potential future trends.


Putting Recent Rate Increases in Perspective

Freddie Mac has been tracking the 30-year fixed mortgage rate since April 1971. Their Primary Mortgage Market Survey compiles data from lenders across the nation, allowing for the analysis of mortgage rate trends over time.


When examining the graph, you'll notice a significant rise in mortgage rates since the beginning of the previous year. However, despite this increase, today's rates remain below the 52-year average. This historical context helps explain why recent rate hikes may create a sense of sticker shock for some buyers. Many individuals have grown accustomed to mortgage rates ranging from 3% to 5% over the past 15 years.


This familiarity with lower rates may be the reason why the recent uptick in rates feels more pronounced than it actually is. Although many buyers have adapted to the heightened rates of the past year, a slight reduction in rates would still be a welcome development. To assess whether this is plausible, it's crucial to examine the relationship between mortgage rates and inflation.


Future Mortgage Rate Trends and Inflation

The Federal Reserve has been actively addressing inflation since early 2022. This is significant because history has shown a connection between inflation and mortgage rates. The graph below illustrates this historical relationship:



The graph provides a clear depiction of the consistent link between inflation and mortgage rates. By observing the left side of the graph, you can see that whenever inflation experiences significant movement (indicated by the blue line), mortgage rates subsequently follow suit (indicated by the green line).


The circled portion of the graph highlights the most recent inflation spike and the subsequent increase in mortgage rates. As inflation has moderated somewhat this year, mortgage rates have yet to exhibit a similar shift.


Therefore, if historical patterns are any indication, the market may be awaiting a correction in mortgage rates to align with the decreasing inflation. While it remains challenging to make precise predictions regarding future mortgage rates, the decline in inflation indicates a potential positive outlook for mortgage rates and your homeownership aspirations.


To gain insight into the potential trajectory of mortgage rates, it's beneficial to review their historical performance. The historical relationship between inflation and mortgage rates suggests that the recent decline in inflation may result in future improvements in mortgage rates, which can positively impact your homeownership goals. To stay informed about these developments, connect with a trusted real estate professional.

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