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Not the best time to buy your first home

According to new data released by Freddie Mac, the average mortgage rate rose to its highest level since 2001, now at 7.09%. This is more than double the average rate in 2021 which hovered around 3%. As The Wall Street Journal reported, when the Federal Reserve began increasing interest rates to curtail inflation, the increased cost to buy a home was expected to be temporary. However, it’s clear that higher mortgage rates may be sticking around longer and rising higher than expected.

Let’s take a look at where mortgage rates have been before and what the implications of higher interest rates mean for first-time homeownership.

Historical highs and lows

Freddie Mac has been surveying lenders since April 1971 to calculate the average interest rates for a 30-year and 15-year fixed mortgage. The 1970s was a time of stagflation – a term used to refer to ‘low growth and elevated inflation’ – and interest rates rose from the 7% range at the beginning of the survey to 12.9% by the end of the decade. This rise continued into the first few years of the 1980s until rates hit a historic average high of 18.5% in October 1981. From there they slowly dwindled into the 9% range for the last half of the 1980s. 

Over the next 40 years, mortgage rates continued to slowly decrease until 2020-2021 when they briefly dipped below 3% before starting to drastically rise last year after the Federal Reserve began raising interest rates to slow inflation. In the span of a year, average mortgage rates more than doubled, which had an immediate impact on new homebuyers.

Stabilizing the market at the cost of first-time home buyers

As housing prices are heavily driven by supply and demand, rising mortgage rates mean more stabilization in home values as demand dwindles to better match supply. After a chaotic few years where home prices all over the country skyrocketed, due heavily to very low interest rates, there is some relief for buyers to see home prices beginning to cool off

However, without the strong buying power of low interest rates, buyers are unable to afford the same home they may have been able to two years ago. As prices are still much higher than they were pre-pandemic many renters are stuck in their current situations. As Julian Mark reported for the Washington Post, millennials may be the ‘unluckiest generation’ when it comes to home buying as the median age for buying a first home is now 36. This statistic started being tracked in 1981 when that age was 29.

Additionally, many homeowners who either purchased their home or refinanced when rates were extremely low are reluctant to let go of their current rate. For reference, an astonishing 62% of mortgage holders had a rate below 4% at the end of 2022, with only 8% of mortgages having a rate above 6%.

Some resources

If you’re interested in focusing on your local real estate market and comparing it to others here are a couple of organizations that can help.

  • Mortgage Bankers Association – has a weekly survey on mortgage application activity and can connect you with a member in your local area. They also release weekly data on mortgage delinquencies.
  • National Association of Realtors – the nation’s largest association of realtors, is a source for locating an expert in your area knowledgeable about the state of the local housing market. They publish a slew of helpful data on a monthly basis, including home inventories, existing- and new-home sales. Existing home sales for July 2023 will be published today (Aug. 22), with new home sales for the same month coming out the following day.
  • S&P CoreLogic Case-Shiller Home Price Indices – tracks changes in the value of residential real estate nationally.
  • Freddie Mac – Weekly survey results since 1971 that are based on the mortgage rate collected from thousands of loan applications submitted to Freddie Mac from lenders across the country.

Author

  • Julianne Culey

    Julianne is the Assistant Director of the Reynolds Center with expertise in marketing and communications and holds a master's in Sociology from Arizona State University.

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