Mortgage Rates - Still a Great Opportunity

First of all, I hope you and your family members all had a wonderful Thanksgiving break.

Unless you were holidaying on Mars, it would have been difficult to avoid the high volume of press coverage on mortgage rates. Highly exaggerated headlines of doom and gloom have inevitably surfaced.

It seems that the rise in rates has for now stalled around the 4.10% benchmark (for a 30-year fixed rate loan) and it remains to be seen what direction they will take going forward as the dust settles from the post-election stocks rally, which caused bonds to become less attractive and force up mortgage interest, which is closely allied to their fortunes.

Rates dipping below 3.5% was never, ever going to be a long term stable situation. In truth, they had been riding their luck for some considerable time and what we've seen in the past few weeks is arguably a correction to a more realistic level. And even in spite of the increases, with just a month left of this year, we are a long way from many expert predictions last year that we'd see a rise to anywhere between 4.5% and 4.65% for 30-year borrowing during 2016.

Naturally, many buyers have considered their position. There's simply no guarantee that we'll be seeing those ultra-low rates for some time, maybe never again, though equally no promises that this can't happen again, of course. Maybe it's not surprising, therefore, that the Wall Street Journal last week reported that mortgage applications were up by 13%, due to a rush among buyers to lock in rates in case they rose any further.

The simple fact remains, however, that rates are still very attractive from an historic perspective.

To emphasize this, I took a look at Freddie Mac's online chart showing average rates over past years - you can read it yourself by clicking here.

Let’s look at the averages for 30 year fixed rate home loans in the past ten complete years:

2006 - 6.41%
2007 - 6.34%
2008 - 6.03%
2009 - 5.04%
2010 - 4.69%
2011 - 4.45%
2012 - 3.66%
2013 - 3.98%
2014 - 4.17%
2015 - 3.85%

Until the end of October, the average for this year was 3.51%. While this is going to head north a bit following recent events, I think it demonstrates that the low rates we've been enjoying are exceptional by any standards.

And it's easy to forget that, just a couple of years ago in 2014, the average rate was 4.17% and the market was doing very well at those levels.

Go back a decade to the last boom period and rates were 6.41%, light years from where we are now. Interestingly enough, the latest Standard & Poor’s CoreLogic Case-Shiller national home price index, released yesterday, is slightly above the peak it reached prior to recession in July 2006, rising 5.5% between September 2016 and September 2015. So it can be said that 2006 and 2016 are somewhat similar years in terms of house price performance, and yet look at the gulf in interest rates suggesting, perhaps, that we should still be celebrating rates not much higher than 4% and certainly not get carried away with silly headlines suggesting that real estate is in some sort of crash dive mode.

Understandably, we've all gotten very used to incredibly competitive rates, but a longer term perspective really helps to understand that, though they've risen, today's rates are still exceptionally great value and still offer a marvelous opportunity for very low interest repayments for the life of the home loan.

Still need convincing how good a situation we're still in? Well maybe it's worth considering that the average for the 1996-2005 period was 6.889%. Here's how the year averages broke down - no sign of 4.10% back then:

2005 - 5.87%
2004 - 5.84%
2003 - 5.83%
2002 - 6.54%
2001 - 6.97%
2000 - 8.05%
1999 - 7.44%
1998 - 6.94%
1997 - 7.6%
1996 - 7.81%

I hope that the above stats help you to appreciate that the real estate market is still in fine shape moving forward. Why not call us today to discuss your best options.

Dominic Nicoli