Last week, the Federal Reserve announced it would raise its benchmark interest rate by a quarter point. In response, the 30-year fixed mortgage rate jumped to 4.72 percent, the highest since 2011. This is up from 4.65 percent prior to the Fed’s announcement.
According to Sam Khater, Chief Economist for Freddie Mac, higher mortgage rates are not preventing prospective buyers from seeking new homes and accessing mortgage loans to purchase them. “The robust economy, rising Treasury yields, and the anticipation of more short-term rate hikes caused mortgage rates to move up. Even with these higher borrowing costs, it’s encouraging to see prospective buyers have a little more success.”
According to Khater, inventory constraints and home prices are easing in some markets. With consumer confidence levels at 18-year highs and steady job gains, it’s likely homebuying activity will continue to increase.
Historically, Rates are Still Low
Although interest rates are currently at a seven-year high in today’s mortgage lending market, it is important to view this upward trend from a longer perspective. In the early 1980s, interest rates were over 16 percent. Prior to the mid-2000s housing crash, interest rates ranged from 6.54 percent in 2002, to 6.34 in 2007.
Raising interest rates has consistently been a key tool used by the Fed to fight inflation. In the early 1980s, the high interest rates contributed to bringing yearly inflation down to 3.5 percent. At that point, the Fed lowered interest rates from over 10 percent to 7.4 percent over the 1990s.
According to the U.S. Census Bureau, as of 2017, about 63 percent of homeowners with mortgages were paying between three and five percent interest on home loans.