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Mortgage Rates Continue Higher But Still Historically Low

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We watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. As buying power has been shrinking, home prices have come under pressure.

This week the 30-Year Fixed Rate rose from 6.32 to 6.50. The following table shows that, since the historic low in the 30-Year Fixed Rate mortgage, the same monthly payment can only service a mortgage that is one-third smaller than in January 2021. Or the same size mortgage ($500,000) will require a payment that is 56.8% higher.

This chart shows that rates are back to about where they were at the start of the Financial Crisis.

I hear a lot of gnashing of teeth about high interest rates, but when we bought our first home in 1964, the interest rate was 7.25%. When we bought our present home in 1972, the interest rate was 7.25%, so 6.5% seems pretty good to me.

The chart below shows the explosion of rates in the 1970s and 1980s. I don’t know how today’s inflation compares to that period, but it does demonstrate how bad things can get if inflation is not tamed.

CONCLUSION: Current interest rates are, in my opinion, somewhat normal with the exception of the inversion. I hear fantasies about when the Fed can start to cut, but cutting rates could just send up back to where the current inflation troubles began.

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