Real Estate shoppers and aficionados, travel with me this week on the interest rate train, as we examine historical mortgage interest rates and come to rest at our destination, today’s marketplace. It may seem more like a roller coaster ride than a pleasant sightseeing journey, but it should give you some perspective on a decision you might be likely to soon make.
Just like real estate prices and home values, mortgage interest rates fluctuate, and actually there is always a dance between the two: as rates rise, prices tend to fall. Of course, many factors influence the prices of homes – supply and demand, popularity of certain areas and other variables.
When we travel back in time and look at historical rates, your view of the current state of affairs may indeed change. Before 2010, interest rates of 4 percent were never achieved and prior to 2003, 5 percent was not a number ever available. In the 1970s the average rates were about 7-9 percent and then in the late ’70s and into the 1980s rates simply went off the charts, rarely dipping below 10 percent and in the early ‘80s reaching the unimaginable heights of 18-19 percent. Starting to feel better now? In the 1990s we fell back to early ’70s rates and stayed there until about 2003, when rates began to take a tumble.
We’ve now become so accustomed to historically low interest rates (since 2010 rates have plummeted to well under 4 percent) that any increase sends us into a panic. It’s true that in the last month or so, mortgage rates have risen a bit, with the national rate for a 30 year fixed rate mortgage at about. 4.5 percent. But in context, this rate is still remarkably low. The Wall Street Journal recently noted that even at a 5 percent interest rate, housing remains affordable.
If you’ve missed the lowest of the low, a mortgage interest rate in the 3-4 percent range, do not despair. These super low rates were attributed to a sinking, no-confidence economy, where the Federal Reserve was forced to downgrade rates in an attempt to stimulate and stabilize. Rates are coming up because, yes, the economy is faring a bit better.
How does this recent upturn in rates affect a new buyer coming into the market? Though you may hesitate as you missed the lowest of the low, it may help to look at the numbers. On a $100,000 mortgage, at 3.9 percent interest, your monthly payment would be about $472; at the new 4.5 percent it is $507, a difference of $35 a month. It’s something, but probably won’t break the bank. If the rate was a historical average of 7 percent, that 30 year mortgage would cost $665, a difference of $193 per month.
In the scheme of things, that 4.5 percent mortgage looks pretty good and should propel you to jump on the train if a new house is sounding attractive.
Higher rates may have more of an impact on refinancing than they do on new purchases. There are still many buyers not dissuaded by new rates and in fact Orange and San Diego Counties remain Nos. 3 and 4 in the competitive real estate market, topped only by San Francisco and Los Angeles.
As the interest rate train chugs along, remember that though you may not have hopped on as it reached the lowest trough, you’re surely not at the top either. You’ll probably get where you’re going anyway, and be happy in the long run. All aboard!
Del Phillips is a California Licensed Real Estate agent. He is a member of the National, California and San Diego Association of Realtors. You can reach Del at Ascent Real Estate at 619-298-6666 or at Del@DelPhillips.com DRE LIC #01267333.
