Weâ€™re currently experiencing historically low mortgage rates. Over the last fifty years, the average on a Freddie Mac 30-year fixed-rate mortgage has been 7.76%. Today, that rate is 2.81%. Flocks of homebuyers have been taking advantage of these remarkably low rates over the last twelve months. However, thereâ€™s no guarantee rates will remain this low much longer.
Whenever we try to forecast mortgage rates, we should consider the advice of Mark Fleming, Chief Economist at First American:
â€œYou know, the fallacy of economic forecasting is donâ€™t ever try and forecast interest rates and/or, more specifically, if youâ€™re a real estate economist mortgage rates, because you will always invariably be wrong.â€
Many things impact mortgage rates. The economy, inflation, and Fed policy, just to name a few. That makes forecasting rates difficult. However, thereâ€™s one metric that has held up over the last fifty years â€“ the relationship between mortgage rates and the 10-year treasury rate. Hereâ€™s a graph detailing this relationship since Freddie Mac started keeping mortgage rate records in 1972:Thereâ€™s no denying the close relationship between the two. Over the last five decades, thereâ€™s been an average 1.7-point spread between these two rates. Itâ€™s this long-term relationship that has some forecasters projecting an increase in mortgage rates as we move throughout the year. This is based on the recent surge in the 10-year treasury rate shown here:The spread between the two is now 1.53, indicating mortgage rates could rise. Actually, a bump-up in rate has already begun. As Joel Kan, Associate VP of Economic Forecasting for the Mortgage Bankers Association, reveals:
â€œExpectations of faster economic growth and inflation continue to push Treasury yields & mortgage rates higher. Since hitting a survey low in December, the 30-year fixed rate has slowly risen, & last week climbed to its highest level since Nov 2020.â€
No one knows for sure. Sam Khater, Chief Economist for Freddie Mac, recently suggested:
â€œWhile there are multiple temporary factors driving up rates, the underlying economic fundamentals point to rates remaining in the low 3% range for the year.â€
Whether youâ€™re a first-time buyer or youâ€™ve purchased a home before, even an increase of half a point in mortgage rate (2.81 to 3.31%) makes a big difference. On a $300,000 mortgage, that difference (including principal and interest) is $82 a month, $984 a year, or a total of $29,520 over the life of the home loan.
Based on the 50-year symbiotic relationship between treasury rates and mortgage rates, it appears mortgage rates could be headed up this year. It may make sense to buy now rather than wait.