What 'rates are historically low' really means
If you're in the market to buy a home, or even remotely on the radar of a mortgage company, you may have noticed lender advertising that goes something like this, "despite rising rates, this is still a great time to buy" or "rates are still historically low."
So although media talk is all about potential Fed rate hikes, rates being higher than a year ago, and lament over the post-housing-crisis, bottom-scraping rates of 2012, you're supposed to believe lender claims that mortgage rates are great?
Well, some mortgage rate history may help.
First, a little background
It's widely understood in mortgage circles that the 30-year, fixed-rate mortgage is the most popular kind for residential home loans in the U.S. This is typically where a loan officer will start when figuring out the best loan term and rate type for a prospective homebuyer. In the end, a 15-year fixed rate, adjustable-rate, or other option may work better, but most American home buyers anticipate the type of monthly payment determined by the 30-year fixed.
Because the 30-year fixed mortgage is the most common, it's also the basis for most news and research findings related to home financing trends.
When a mortgage lender advertises rates being historically low, they're comparing the current rate with decades of rate history provided by government entities such as the Department of Housing and Urban Development (HUD) and Freddie Mac — one of the two top mortgage purchasers and a government-supported agency.
Freddie Mac provides a look at rates each month of the year since 1972. You'll see May 2017's average rate on a 30-year, fixed-rate mortgage at 4.01%. Compare that to 3.60% a year ago, 6.26% ten years ago, 7.94% twenty years ago, 10.60% thirty years ago and 8.83% forty years ago in 1977. Forty years of perspective on mortgage rates.
HUD shows two decades of 30-year, fixed-rate averages for FHA-insured home mortgages with this chart dating back to 1992 when rates were hitting 8.28%.
So the next time you hear a news report that rates are climbing, or receive an email from a loan officer with a subject line about historically low rates, you'll be able to put that information into context with forty years of rates reports.
