Rising Mortgage Rates — A Little Perspective

I have been writing for many months about the coming increase in interest rates.  At the end of March 2010, the Fed ended its program of artificially supporting demand for mortgage-backed securities, keeping interest rates lower than the market would have dictated otherwise.  The time has come, and rates are beginning to rise:

Mortgage Rates Jump

The article notes:  “Many analysts forecast that rates will rise as high as 6 percent by early next year.”  

I suspect that’s true.  Rates may even go a little higher, but (a) there is plenty of time left to make your move if you’re in the market for a home, and (b) from an historical perspective, there is really nothing wrong with paying 6% to 6.5% for a mortgage loan! 

Here’s a  summary of interest rates for a 30-year fixed rate mortgage since April 1971:

Mortgage Rate History 

Ah, there are the “good ol’ days” of  16% to 18% mortgage rates in 1981 and 1982!  But let’s look at just twenty years of history — long after that ugly peak.  From April 1990 through March 2010, the average mortgage rate was 7.14%!  The average over the past 10 years was 6.21%.  The truth is that we’ve only had mortgage interest rates in the 5% and under range for about fifteen months!  And already we consider that “normal,” and act as if anything higher will keep people from buying and hurt the housing market?

I am not anxious for rates to increase, but it’s happening.  Keeping the whole picture in mind, however, all the benefits of home ownership remain — financial leverage, equity build up over the long term, deductibility of related taxes and interest expenses, and — most importantly — the knowledge that you have something really significant that’s yours!

For all the reasons I have written about elsewhere in recent months, the Austin/Central Texas economy and real estate market remain perhaps the strongest in the United States.  If it’s your time to move, don’t let headlines about a “jump” in interest rates scare you off.