Higher rates, not the end of the world May 7, 2018

You?ve probably already seen the alarming headlines, that mortgage interest rates rose this week to highs not seen in over four years.? This has caused alarm with many prospective home buyers. It sounds like the end of the world for mortgage rates, but to really interpret what four years means, we have to take a look back at history.

Last week, Freddie Mac released its weekly mortgage rate survey, pointing out that rates hit their highest levels since the week ending August 22nd, 2013. While that sounds like a really long time, and it is I suppose, nearly 5 years in fact, we have to take a look at the interest rate environment since then.

Since 2013, mortgage rates have been hovering around levels not seen in our lifetime, and a few months before that the 30-year fixed hit its all-time low in November 2012. That low point was 3.31%, which is about a point and a quarter below current rates. Sure, it?s not great news, but let?s look at it the other way. Before this period of incredibly low mortgage rates brought on by the Fed intervening and purchasing mortgage bonds, a result of the crash of 2008, 30-year fixed rates were in the high-5% and mid-6% range.? If you want to go back even further, rates were nearing the 10% range.

The takeaway is that while we no longer have lifetime low home loan interest rates, we still have historically excellent rates. And if you already own a home, there?s a good chance you have one of these rock bottom rates locked in for life.

Let?s all come to terms with the fact that we got spoiled for the past five years.

It?s all relative, isn?t it? Once you see something better, it?s hard to ever look at the other thing the same again. When the Fed first announced their plan to save the housing market with low mortgage rates, everyone fretted about the day they?d finally rise. We seem to be getting our first real taste of it, and while it?s unwelcome news, it?s not really as bad as the headlines make it out to be.

If someone led with, ?Your payment will be $88 more per month,? it would probably get brushed aside. But when we throw out ?highest rate in over four years!? the panic and feelings of discontent rain down. Instead of worrying, go to my calculator on this web site and crunch a mortgage payment at today’s rates. It might not be as bad as it sounds.

Keep in mind that mortgage rates can reverse course just as easily. The forecast for the rest of 2018 still call for rates to stay flat or even fall by year-end. We already saw one uptick followed by some relief, and that?s probably how things will continue to go.

It?s going to take some time to get used to this new environment of seesawing rates on an upward trajectory. After all, we had it so good for so long that everyone got complacent, and even entitled. It?s like a long stock market bull run that finally swings the other way and catches everyone by surprise.

But over time, we adjust our expectations and learn to deal with it, and perhaps appreciate the fact that it could be a lot worse.