Mortgage Rates Move from Dirt Cheap, to Cheap

The same home you considered buying a year ago with a $200,000 mortgage would now cost about $90 more in interest payments per month, or about $1,080 per year, given the rise in mortgage rates since last year. But let’s put this increase into perspective – and take the long view.

One thing seems certain: we aren’t likely to see average 30-year fixed mortgage rates return to the historic lows experienced in 2012. The all-time record low – since Freddie Mac began tracking mortgage rates in 1971 – was 3.31% in November 2012. Conversely, the all-time record high occurred in October of 1981, hitting 18.63%. That’s more than four times higher than today’s average 30-year fixed rate of 4.32% as of March 20!

Yes, rates are higher than they were a year ago – and certainly higher than two years ago. But if you look at the averages over the last four decades, today’s rates remain historically low.

Decade Average 30-Year Fixed
Mortgage Rate
Approximate Payment on a
$200,000 Mortgage
1970s 8.86% $1,589
1980s 12.70% $2,166
1990s 8.12% $1,484
2000s 6.29% $1,237
2014 Average YTD 4.36% $997

The Affordability Hit

How does affordability across the nation fare in a rising interest rate environment?

On the West coast and in parts of the East, homebuyer affordability is under pressure for the typical family due to a combination of higher mortgage rates and rising home prices. In some markets such as Honolulu and San Francisco, buying a home is a real stretch for the median income family. If interest rates increase to around 5% by year-end as forecasted by Freddie Mac, affordability pressure will increase further in these areas.

However, in much of the rest of the nation, housing is still very affordable with home prices still well below their 2006 peak levels. With mortgage rates at 4.32%, 34 of 157 metros tracked are no longer affordable or close to unaffordable for the median income household. At the same time, 123 of these metros remain very affordable. Interest rates would have to reach 7% to call the majority of the nation’s metros unaffordable (only 70 out of the 157 would be affordable). Of course, if rates were ever again to reach the October 1981 highs of over 18%, buying a home would be out of reach for most of us. To provide perspective, at the high of 18.63%, your mortgage payment on a $200,000 mortgage would be about $3,117 per month compared to about $992 a month at today’s 4.32%.

Stubbornly high unemployment over the last several years coupled with stagnant income growth exacerbates declining affordability in a rising interest rate environment. More jobs and income growth would help blunt the effects of higher interest rates and make buying a home more accessible. While jobs and income have shown some improvement in recent months, they continue to be challenged.

In the meantime, rates hovering around 4.5% may be high relative to last year, but something to celebrate compared to almost any year since 1971.

If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!

The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley Columbus Delaware Downtown Dublin Gahanna Grandview Heights Granville Grove City Groveport Hilliard Lewis Center New Albany Pickerington Polaris Powell Upper Arlington Westerville Worthington