Mortgage rates have risen slightly in recent months, but should that be a cause for concern?
Many people take increasing mortgage rates as a reason to avoid the idea of home buying altogether. We will look at the current mortgage rates, what is causing them to change, and what that might mean for you and your decision to buy a home.
Let’s get started.
Understanding Current Mortgage Rates
To understand the fluctuation in mortgage rates, we have to take a look at the habits of U.S. Treasury notes.
Mortgage interest rates and Treasury yields returns tend to follow the same pattern over time. These yields are the value that one earns when one owns securities, bonds, and notes.
When demand for bonds increases, yields go down. Demand for Treasury bonds relates directly to the state of the economy.
When times are tough, the demand for bonds goes way up. This situation happens because treasury bonds are considered one of the safest investments that a person can make. In an economic crisis, savvy investors will protect their wealth by shoveling it into the safest options available.
So, when the Covid-19 pandemic hit, investors moved their funds into Treasury bonds. In other words, the demand for bonds rose, and yields lowered. The mortgage interest rate went along with the yields and became incredibly low.
Many mortgage lenders send enter into mortgage pools sold to investors and backed by Ginnie Mae, Freddie Mac, and Fannie Mae. These are government-sponsored companies that are traded publicly and thought to be safe investments.
As two of the safest investments possible, they follow patterns similar to one another.
How The Pandemic Affected 30 Year Fixed Mortgage Rates
One year ago, the economy and state of the world were seemingly up in the air. The general public didn’t know how bad the pandemic would be, how the U.S. leadership would handle it, or what to expect in terms of economic stability.
Many people lost jobs, and others had to conserve their money if they lost their job. Hours and jobs being cut, most people were not out spending much money in the market, and the value of many publicly-traded companies dropped a great deal.
This situation was true across most of the market, and a lot of the longstanding investments that people had in stocks were shifted into Treasury bonds. That situation provided an excellent foundation for anyone who was looking to buy a house during the pandemic.
Interest rates dipped below 3%, which is very low considering the trajectory of rates in this country. We reached a peak of rates of almost 19% in the early ’80s.
Since then, rates of been dropping steadily. Before the pandemic, rates hovered in the 3-4 percent range.
How Things are Changing
So, in the grand scheme of things, mortgage rates are still very, very low.
The fact that rates have popped back up above 3% might seem like a startling fact if you haven’t been paying attention to the long-term trends. Those people purchasing homes in the 80s would have given an arm and a leg to have a rate somewhere below 10%.
The small spike in interest rates comes as a result of improving conditions within the country. As vaccines start to roll out, cases will decrease, and the economic forecast is looking up.
That means that investors will start spreading their money back into different economic sectors hit by the pandemic. Moving their money early in the recovery process is smart, as it will give them more opportunity to make gains on that capital.
As a result, there is a decreasing demand for Treasury bonds and mortgage investments. If you remember the beginning of this discussion, we pointed out that higher demand for bonds leads to lower yields.
Alternatively, lower demand brings on higher yields, and the interest rates follow those yields. It is a complex little relationship at first thought, but it is easy to follow if you remember that yields and mortgage rates follow a similar pattern.
Yield and mortgage rates can work a little differently, but looking at the long-term trends in those categories shows an almost exact relationship.
So, Should You Buy a House in This Economy?
The idea of buying a home right now is definitely a smart one. Deciding to purchase a home in the middle of the pandemic might have been unwise because of the flaky state of job security and the economy at large.
Just because interest rates were low does not mean that you could justify making that kind of investment when times were more challenging. Now rates are still very low, and the prospects of the economy seem a little steadier.
So, it is an excellent time to buy a home, especially if you are looking at interest rates. The fact that things have risen marginally does not mean that rates are not lower than they have been in the past.
Even if rates go up an entire percentage point from where they are today, they would still be very low.
The sooner you decide to get a mortgage, the lower the rates might be, speaking in terms of the forecasted economy. As things with the economy continue to strengthen, you’ll see interest rates rise inch-by-inch.
Over time, you might wish that you had decided to get a mortgage when the rates were where they’re at today. You never know, though, something else catastrophic could happen and send rates back below 3%.
Let’s hope and pray that it never happens that way, of course. Your best bet is to explore your options now and see if it is time to purchase a home.
Interested in Buying a Home?
If you think the mortgage rates look good enough for you to buy a home, we are here to help you move forward. There is a lot to learn when it comes to buying a house, though.
Please explore our site for more insight into home buying, current mortgage rates, and much more.
At 7th Level Mortgage, we are an experienced team of mortgage professionals based out of New Jersey and serving the east coast from Pennsylvania to Florida, including Delaware and Maryland. We have won numerous awards for our excellent professional work and reputation with clients for being extremely diligent, accessible, and hands-on throughout the entire mortgage process.