Over the last few weeks, mortgage interest rates have continuously climbed to the point of reaching the mid-7 % on average, where they currently are. It’s crazy that we started in the higher 2% this year! The rapid increase in rates is something that we have seen once before, so let’s look into the 80s to have an idea of what may be happening in the short term.
In 1980 inflation was dancing in the 11% range, which pushed the Fed to increase rates to control this inflation. The lack of a better plan drove interest rates up to 18% by March 1980, which made the Fed believe things would get under control and dropped them to 9% in July of the same year. They, unfortunately, did not expect the little to almost contrary reaction this would have in the market, which drove interest rates up again to the 19%+ levels by January 1981. Interest rates bounced significantly in the following months, but they did not see single-digit numbers until mid-1983.
So, knowing this, my thoughts are that interest rates will remain at 7%, if not higher, for the upcoming couple of years. So will home prices finally drop?
There has not been a historical correlation between interest rates and median home prices. The graph below shows that, even though interest rates reached record-high numbers in the early 1980s, home prices continued to climb steadily. Yes, at a lower rate, but they still went up. So there is a strong possibility that this will be our future.
What I always invite my clients to do is to get pre-approval for a loan. This will determine not only your purchase power but also your monthly payments. The most common mortgage product is the 30-year fixed-rate mortgage, with which you will pay the same every month for the next 30 years after purchasing a home. If your monthly payment makes sense to you and your family’s budget, then there is no reason not to buy a home. Real Estate continues to be one of the best investments.
If you have any questions about this subject or the real estate market, don’t hesitate to contact me; I would love to help you reach your real estate goals and dreams.
