Low interest rates over the past few years helped fuel a red-hot housing market, pushing home prices ever higher. Today, as the Federal Reserve attempts to rein in inflation with a series of rate hikes, mortgages are getting more expensive, all while home prices remain elevated. Not so long ago, the average rate on a 30-year home loan was close to 3%. Last week that number was pushing 6%.
Considering how rates have popped over the last few months, some would-be homebuyers may be tempted to put their house purchases on the back burner. However, a longer-term perspective may inspire a different strategy.
Data from Freddie Mac (FMCC) going back to 1971 puts the average 30-year mortgage rate just shy of 8%. What’s more, the record high was 16.6% in 1981. In comparison, today’s rates coming in below 6% seem pretty good.
Amid an easy money policy from the Fed, interest rates sank to almost 0% during the pandemic, a rare occurrence. Today, with soaring inflation, the Fed is taking a different path. The central bank is hiking interest rates in a policy shift many market observers expect to continue. This means mortgage rates are likely to continue their upward march.
In this environment, would-be homebuyers may do better securing a mortgage rate today as opposed to waiting. This could provide an opportunity to lock in rates that are lower than historical averages.
There are a variety of ways to properly evaluate your budget and determine what you can afford in a home. A thorough review of your credit report is a good place to start, as that ensures your score is based on accurate information. Other variables you can control are the down payment amount, size of the loan, and the term.
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