Mortgage Rates: Past, Present, and Possible Future

If you're planning to purchase a home this year, you're likely closely monitoring the fluctuations in mortgage rates. These rates have a significant impact on your homebuying affordability, especially in today's challenging market conditions. Therefore, it's a favorable moment to examine the broader historical context of mortgage rates and their current status. Additionally, understanding their correlation with inflation can provide valuable insights into potential future movements in mortgage rates.
Providing Perspective on Rate Changes
Freddie Mac has diligently tracked the 30-year fixed mortgage rate since April 1971. Each week, they publish the results of their Primary Mortgage Market Survey, which compiles mortgage application data from lenders nationwide (as illustrated in the graph below):
When examining the right side of the graph, it becomes apparent that mortgage rates have experienced a significant increase since the beginning of the previous year. However, even with this uptick, today's rates remain below the 52-year average. While this historical context is informative, it's essential to note that homebuyers have become accustomed to mortgage rates ranging from 3% to 5% over the past 15 years.
This insight is crucial as it helps explain why the recent rise in rates might feel surprising, despite their proximity to the long-term average. Many buyers have adapted to these elevated rates over the past year, but a slightly lower rate would certainly be a welcome development. To assess the feasibility of such a scenario, it's necessary to delve into the realm of inflation.
What Lies Ahead for Mortgage Rates?
Since early 2022, the Federal Reserve has been diligently working to combat inflation. This is noteworthy because, historically, there has existed a discernible link between inflation and mortgage rates (as depicted in the graph below):
This graph illustrates a rather dependable connection between inflation and mortgage rates. When observing the left side of the graph, it's evident that each significant movement in inflation (highlighted in blue) is subsequently mirrored by mortgage rates (highlighted in green).
The circled portion of the graph draws attention to the recent surge in inflation, closely followed by a corresponding increase in mortgage rates. However, as inflation has somewhat moderated this year, mortgage rates have not yet mirrored this decline.
Consequently, if historical trends are any indication, the market appears to be awaiting the adjustment of mortgage rates in response to the changes in inflation, potentially leading to a downward trajectory. While it is impossible to make precise predictions about future mortgage rates, the pattern of moderating inflation suggests that a decline in mortgage rates in the near future aligns with a well-established historical pattern.
In Conclusion
To gain insights into the potential future of mortgage rates, it is beneficial to review their historical trajectory. The undeniable link between inflation and mortgage rates suggests that the recent moderation in inflation could bode well for the future of mortgage rates and, by extension, your aspirations of homeownership.

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