Mortgage rates won't go back down to 3%
"One can never truly predict the future, but I don't see mortgage rates returning back to the 3% range in the remainder of my lifetime," he says.
The short-lived era of 3% interest rates for 30-year fixed mortgages is over, and unlikely to return anytime soon — perhaps for decades — says Lawrence Yun, chief economist at the National Association of Realtors.
If you're a U.S. homebuyer waiting for a return to super-low mortgage rates, don't hold your breath.
That's because average 30-year fixed mortgage rates of 3% or less were an anomaly related to the pandemic, lasting from about July 2020 to Nov. 2022. Historically, the rates have been closer to an average of 7% over the past 50 years, according to Freddie Mac data .
Historically low mortgage rates during the pandemic were "an exceptional measure, during exceptionally uncertain times," says Yun.
With the pandemic came economic uncertainty not seen since the 2008 financial crisis. Fearing a prolonged recession, the Federal Reserve followed the same playbook it used in 2008, pumping money into the economy to stimulate growth.
As was the case in 2008, the Fed slashed interest rates to nearly 0%, created emergency lending programs and bought government bonds and mortgage-backed securities, otherwise known as quantitative easing.
Since mortgage rates are closely linked to the Fed's benchmark interest rate and can be driven further down by quantitative easing, the interest on mortgages subsequently hit rock bottom at 2.67% in January 2021.
Congress also passed trillions of dollars in Covid-19 relief and stimulus spending, which helped increase U.S. national debt by roughly 30% between 2020 and 2022, according to Treasury Department data.
However, unlike 2008, the economy recovered quickly and rising inflation soon became a problem. By spring 2021, the year-over-year inflation rate had accelerated beyond the Fed's benchmark of 2%, forcing the central bank to start raising interest rates again. And with that, mortgage rates rose too.
Source: CNBC
