You have probably heard the news that mortgage interest rates have taken a jump upwards over the summer and may continue to rise in the remainder of the year. A lot of potential buyers are wondering how this will affect their plans to purchase homes.
There is no question that low interest rates make home ownership more affordable. While they have increased over the summer, it’s important to keep a historical perspective on how current rates compare to an average or “typical”, rate.
The chart in this article’s graphic shows rates in the U.S. for about the past 35 years. Over that time period a median rate would be about 7% or 7.5%. They dropped to about 3.25% around the beginning of 2013, then increased to as high as 4.5% during the year. They’ve settled down to around 4.25% recently. The rise came mostly after hints were made about a change in activity by the Federal Reserve Board. 4.25% is still extremely good compared to the “typical” rate over the past few decades.
Where will rates go from here? That is hard to predict. It should be noted that the jump in rates over the summer came after hints that the Federal Reserve Board might begin tapering off its program of buying bonds and mortgage related securities. This is the program that has pushed rates down to artificial lows. This program will taper off some time and will eventually end. When those changes will happen is still being determined.
More news from the Fed is coming in September. Buyers who are close to choosing the homes they want to purchase might want to consider locking in their mortgage rates now to protect from additional jumps in rates.
In the long term, purchasing is still cheaper than renting. It has been estimated that this will continue to be true in Los Angeles until interest rates reach 7.5%.* Additionally, prices are just coming up from their recession lows. As both continue to rise, affordability will diminish. Consult a qualified CPA, mortgage broker and Realtor to get greater insight for your individual situation.