May 20 2022

Putting today’s rates in perspective

With all the headlines about rising rates, current mortgage rates are still below the historical average.

Mortgage rates aren’t expected to drop any time soon. While a rate increase can understandably cause concern if you’re in the market for a house, it can be comforting to know that you still have more buying power than previous generations.

Today’s rates aren’t as high as you’d think

It’s important to understand how mortgage rates impact your purchasing power when buying a house. “Buying power” is the amount of house you can afford to purchase—information you’ll find out when you pre-qualify*. Today’s mortgage rates directly influence your estimated monthly mortgage payment on a house.

When mortgage rates rise, so will your projected monthly payment. As shown in the chart below, this can cause your buying power to decrease:

With more rate increases on the horizon, how worried should you be?

This is a great time to ease anxieties by putting today’s rates into perspective. Many homebuyers don’t know that:

  • Compared to the highs seen in the 1980s, current mortgage rates are historically low.
  • In 2020, we saw the lowest historical mortgage rates, triggered by the pandemic.
  • From a big-picture view, today’s somewhat higher rates are still seen as affordable.

If you haven’t gotten a personalized assessment yet, you may not know how affordable your monthly payment could be. Click here to get started.

“Consumers should bear in mind that mortgage rates are still historically low. The historical average rate on a mortgage is 8 percent,” Nadia Evangelou, Senior Economist for the National Association of REALTORS®, says.

This can be seen in the chart below:

If you look at the headlines right now, you’re probably going to see sensationalized stories about rising rates that don’t put them in historical context. The reality is that mortgage rates couldn’t stay at 2020’s rock-bottom levels forever. Rates, while historically low, are expected to continue to increase, partially related to inflation.

But when you compare today’s rates to those of the 1980s—a time of soaring inflation—there’s no contest. Today’s mortgage rates are less than a third of what they were in the 1980’s peak, even at current levels of inflation. (Another point of perspective: Canada’s home prices are significantly higher than those in the U.S., recently reaching more than nine times the household income.)

While mortgage rates are historically favorable, it’s still smart to look at where rates are heading if you’re thinking about buying a house. Consider that:

  • Most major housing authorities agree that mortgage rates aren't likely to decline.
  • As mentioned above, every rate increase shrinks your buying power, or the amount you can afford to purchase.
  • Pending rate increases may motivate many homebuyers to purchase sooner so they can afford more within their budget.

“Get pre-approved* with where rates are today, but also consider what would happen if rates were to go up, say another quarter of a point,” Danielle Hale,® Chief Economist, suggests. “Know what that would do to your monthly costs and how comfortable you are with that, so that if rates do move higher, you already know how you need to adjust in response.”

The best way to address rising rates is just as Hale explained: Reach out to a mortgage professional to find out how much you can afford today, as well as tomorrow. If you’re not sure if you’re mortgage-ready right now, request a personalized assessment.

A skilled Loan Officer can clue you into the many options you have for successfully navigating today’s market and walking away with an affordable mortgage. Making a few improvements to your credit score—so you can potentially qualify for a better rate—is just one example.

Another is using a specialty program like Academy Mortgage’s new Pre-Approval+ to gain early pre-underwritten* loan status and strengthen your offer when you’re ready to make one. Ask your Loan Officer for details.

It’s possible that rate increases may bring some balance to the housing market. And while still at record lows, more inventory is slowly becoming available. What this simply means is that, if you’re feeling motivated to purchase before rates and home prices rise any higher, it could be an ideal time to do it. You may be able to afford more now than you would in a few months, without changing your budget.

Rising rates don’t mean homeownership’s off the table

This is a time when it can literally pay to work with an expert: Contact an Academy Mortgage Loan Officer if you’d like to discuss what’s going on in today’s market and learn a few ways to influence your rate for the better.

*Pre-qualification/pre-approval/pre-underwriting is not a commitment to lend.

This blog is intended for educational purposes only. Please consult a trusted professional as personal circumstances may vary. MAC523-1481176.