I can’t count how many times per week I have to address client concerns about current rates or rate direction. Then the most obvious reason for this hit me: most homebuyers today have never seen higher rates! Today, over 50% of buyers are or Gen Z. Millennials weren’t in the market in 2008. With the oldest Millennials hitting 40 this year, they would’ve been in their 20s when the market crashed in 2008. The rates of the 1970s/1980s are ancient history to them!
To bring it into perspective, I break out this chart.
You can see where I edited it to emphasize recent history:
- The yellow-shaded area is the Fed’s policy of quantitative easing (QE) to help the country climb out of the great recession sparked by the housing crisis of 2008. This means the government was buying tons of government notes & bonds to shore up the economy, which caused rates to drop precipitously.
- The pink-shaded area is the Covid-induced response by the Fed to shore up the economy during the past couple of years. Again, the government’s policy of flooding the market with money caused rates to decline.
- With the Fed ceasing purchases of US-backed paper in 2022, we see rates returning to historical norms as inflation hits us hard. Indeed that is a significant increase in less than a year. Look back to 1977 to see something similar in scope.
- But, the silver lining to our gray cloud: rates have leveled off some. I marked that in Pencil and purple on the far right.
- So, where are we? At or below the 50yr average!
- Unless we have another pandemic or the government decides to prop up the economy, we will not see rates below 5% anytime soon.
Conclusion: today’s interest rates should not dissuade consumers from buying now, as rents in many areas are increasing faster than mortgage payments. If you need to tailor a scenario to a specific client, we are here to help!
Comments(3)