5-7% Mortgage Rates are the Historical Norm

Home buyers are complaining that 30 year mortgages are about mid 6% and 15 year mortgages are high 5%.   Many of these home buyers of been spoiled by the super low mortgage rates below 3% during the covid era of 20-21.

Low interest rates had two impacts:

1. It lowered the monthly payment for buyers.  They could afford more house.
2. It caused house prices to increase since buyers could afford higher prices for the same monthly payment.

Now that interest rates are higher, people who have low interest rates have low incentive to buy a new house and have their monthly payment increase significantly.  First time home buyers are locked out the market by both high monthly payments and high house prices created by 20-21 low mortgage rates.

But rates are not that different from historical norms.  Many current buyers and potential buyers weren't in the market in the 80s.  I was.   Back then, mortgage rates hit a high of 17% after being in the normal 4-7% for decades.  I felt fortunate to get a 12% mortgage rate for my first house.   I got my second house after being married at a 5.5% mortgage rate and felt lucky.

IMHO, if it's not mortgage rates, then it must be home price inflation.  If it the issue, it's a much tougher problem to solve for home buyers.

For more on Crossing Generations, check back every Thursday  for a new segment.

This is not financial, mortgage nor home buying advice. Please consult a professional advisor.

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