Our New Normal
/My parents were married in 1980 and bought their first home in 1981. I can remember my mother telling me the interest rate on their mortgage was around 15%, and that this was close to what everyone was paying at the time. As an elder member of the Millennial generation, I first entered the home ownership market during a time when the average 30-year mortgage interest rate was less than 5%. This was during the decade after the Great Recession, when interest rates stayed near zero, so my generation’s perspective on a normal mortgage interest rate may be somewhat skewed.
Recent data from the Mortgage Bankers Association indicates that mortgage loan applications have recently begun to increase, and that the average 30-year fixed mortgage rate is now at 7.13%. In addition, the Fed has now adopted the “higher for longer” message regarding the trajectory of interest rates in an effort to continue curbing inflation. As we enter the traditional home buying and selling season, I started to wonder whether today’s interest rates are out of line with historical numbers. According to my calculations (and the data provided by Bankrate and Freddie Mac), however, 7.80% is the average interest rate for a 30-year fixed mortgage over the past 50 years.
Over the long run, the Federal Reserve is predicting that interest rates may normalize in the 2% to 3% range. When this happens, I anticipate mortgage rates will start to come back down and many who have purchased homes in the past couple of years will likely try to refinance their loans to a lower rate. In the meantime, however, it seems that we may be in the 7% - 8% range of 30-year loan rates becoming the new normal in home lending.
- Margaret Gooley, CFP®, CDFA®, Worley Erhart-Graves Financial Advisors
