We’re currently experiencing historically low mortgage rates. Over the last fifty years, the average on a Freddie Mac 30-year fixed-rate mortgage has been 7.76%. Today, that rate is between 2.8-3.4%. Flocks of homebuyers have been taking advantage of these remarkably low rates over the last twelve months. However, there are no guarantee rates will remain this low much longer.
Whenever we try to forecast mortgage rates, we should consider the advice of Mark Fleming, Chief Economist at First American:
“You know, the fallacy of economic forecasting is don't ever try and forecast interest rates and/or, more specifically, if you're a real estate economist mortgage rates because you will always invariably be wrong.”
Many things impact mortgage rates. The economy, inflation, and Fed policy, just to name a few. That makes forecasting rates difficult. However, there’s one metric that has held up over the last fifty years – the relationship between mortgage rates and the 10-year treasury rate. Here’s a graph detailing this relationship since Freddie Mac started keeping mortgage rate records in 1972:
There’s no denying the close relationship between the two. Over the last five decades, there’s been an average 1.7-point spread between these two rates. It’s this long-term relationship that has some forecasters projecting an increase in mortgage rates as we move throughout the year. This is based on the recent surge in the 10-year treasury rate shown here:
The spread between the two is now 1.53, indicating mortgage rates could rise. Actually, a bump-up in rate has already begun. As Joel Kan, Associate VP of Economic Forecasting for the Mortgage Bankers Association, reveals:
“Expectations of faster economic growth and inflation continue to push Treasury yields & mortgage rates higher. Since hitting a survey low in December, the 30-year fixed rate has slowly risen, & last week climbed to its highest level since Nov 2020.”
What does this mean for you?
If you're thinking of buying a home, nows the time to buy. Even an increase of half a point in mortgage rate (2.81 to 3.31%) makes a big difference. On a $300,000 mortgage, that difference (including principal and interest) is $82 a month, $984 a year, or a total of $29,520 over the life of the home loan.
If you're an investor, the rise in rates means crowdfunding will continue to become a competitive option for homebuyers seeking creative funding options for their next property.
Based on the 50-year symbiotic relationship between treasury rates and mortgage rates, it appears mortgage rates could be headed up this year. It means great returns can be had for investors who participate in crowdfunding now, and increased demand for the kind of alternative funding offered through crowdfunding in the near future.