Mortgage Rates Are Still Historically Low

Homebuyers may not want to hear this, but mortgage rates are still historically low compared to the past 30-40 years. Did you know that in the 1980’s, rates were in the high double digits? In October 1981, the average weekly interest rate for a 30-year, fixed rate loan hit an all-time high of 18.6%, according to Freddie Mac.

Although mortgage rates were obscenely high, home affordability was low. In October 1981, the average home cost about $70,398. But with mortgage rates averaging 18.45% that month, the $870 monthly payment took up about 55% of the median income at the time, according to Black Knight, a mortgage data company.

By October 1986, rates had dropped to 9.97% and a typical home was $91,488. That brought the monthly payment down to $640, and took up just 30% of the median income.

Over the past five years, while the average home price has gone up 60%, the average income has risen less than 15%.

Historically, home prices were between three to four times the median income, a ratio that remained consistent from 1975 until 2000, according to Black Knight. In 2000, as interest rates began to drop below 8%, the ratio began to rise, reaching a point in 2005 where home prices were almost five and a half times the median income.

The sharp rise in 2005 was largely fueled by expanded credit in the mortgage market, with mortgages being offered based on a buyer’s unverified income, and through products like interest-only, adjustable-rate and negative amortizing loans. We know what happened after that…

The bottom line is, there’s always an ebb and flow to mortgage rates, and when there is a buyer’s market, or a seller’s market. Regardless of this, real estate is always a good investment.