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The Impact of Mortgage Rates on Homeownership: A Look at Historical Trends and Current Interest Rates

For many homeowners, the mortgage rate they secure plays a significant role in their overall homeownership experience. As interest rates fluctuate, they can have a profound impact on the affordability of purchasing and maintaining a home. We are currently experiencing an affordability challenge as both home prices and mortgage rates have risen and home ownership i may be out of reach for many first time home buyers.

In the early 2000s, mortgage rates were relatively high, with the average 30-year fixed-rate mortgage hovering around 8% in 2000. Following the 2008 financial crisis, rates started a downward trajectory and were considered very low by 2016. When COVID hit in 2020, rates plummeted even further. By July 2020, the 30-year fixed rate fell below 3% for the first time and it kept falling to a new record low of just 2.65% in January 2021. The average mortgage rate for that year was 2.96%. WOW!

As of February 2024, a study by Redfin reported that 89% of mortgage holders have rates below 6%. 78% of borrowers have a rate below 5% while 59.5% have a rate below 4% and 22.6% have an amazing rate below 3%.

So what does this mean for the real estate market?

  • When rates are high, the cost of borrowing increases, resulting in higher monthly mortgage payments. This can potentially price out some prospective buyers from the market, reducing overall demand for homes.

  • Existing homeowners may be less inclined to sell or upgrade to a new property if they are locked into a low-rate mortgage resulting in low inventory.

  • A lack of inventory then leads to more buyers competing for less homes which in turn generates multiple offers and increasing housing prices.

Future markets are hard to predict so trying to “guess” the next rate reduction or when home prices will come down may not be the best approach. Be strategic and create a plan. Consult your lender and your real estate professional. Lenders have a variety of programs that might suit your needs and perhaps your realtor can help you find a property in an un-explored neighborhood that you hadn't considered before. Think out of the box and remember your objective! If you want to be a home owner or move to a new neighborhood, be prepared to compromise in the short term. Get your foot in the door, build equity, and then move up. The longer you wait, the harder it might be!

Sources: Redfin |


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