The popular 30-year rate has reached 6.91% starting in 2025, according to the latest data from Freddie Mac.
This means that mortgage rates are now on par with 2001 levels, when the 30-year rate was 7.03% in January.
That year, the 30-year fixed rate remained low, ending 2001 at 7.07%.
This got me thinking. What if mortgage rates do nothing in 2025, the same as they did in 2001?
It’s definitely a possibility and something to think about and prepare for if you’re a potential home buyer (or loan originator).
2001 Housing Estimates to 2025
January: 7.03%
February: 7.05%
Mar: 6.95%
Eph: 7.08%
May: 7.15%
June: 7.16%
July: 7.13%
August: 6.95%
September: 6.82%
October: 6.62%
November: 6.66%
December: 7.07%
After a decade of prime mortgages, the 30-year fixed rate is back to its long-term average of 7.75%.
It’s actually much better than that as it hovers around 7% today, which puts it very close to levels last seen in 2001.
If you look at that year, listed above by month, which is now 24 years ago, the 30 years planned is doing very little.
It stayed within a tight range above 7%, dipping slightly below 7% towards the end of the year, but returning to where it started to close the year.
What if mortgage rates do the same thing in 2025?
Tip: Even though mortgage rates stay low year after year, there will be peaks and valleys throughout the year as well as opportunities, so be prepared to move if you’re in the market for a mortgage refinance!
Maybe We’ll See Real Estate Rates Fall This Year
While we keep talking about whether mortgage rates will go up or down in 2025, no one is talking sideways.
There is a chance that they could do very little and just hover around current levels for the next 360 days.
If so, home buyers will just have to get used to this new normal and adjust accordingly.
Of course, real estate agents will also need to adapt to this new norm. And that would involve further and/or more drastic price reductions as affordability remains out of reach for many.
In any case, we don’t seem to be closing the conversation about a stable mortgage rate.
We always think they will go up or down, but maybe we should focus on what happens when they do very little of nothing.
It may be time to start exploring different mortgage options over a 30-year fixed term.
I mentioned this in a previous post. A 30-year fix is no longer ideal, yet it is still the default choice for home buyers today.
The problem is that we still can’t forget the toxic mortgages of the early 2000s, many of which were ARMs.
Those mortgages led to the greatest housing crash of our lifetime, although it may not be fair to compare today’s ARMs to them. those ARMs.
There is a middle ground on an adjustable rate mortgage that is underwritten with a commitment.
It offers a fixed interest rate of 5 to 7 years or more, and offers a healthy discount for future rate adjustments.
Everyone seems to think that mortgage rates will improve soon whether it’s this year or next.
Yet they continue to pay a premium for a 30-year fixed rate, which can be 1 percent higher than other options.
So one could argue that the arm could actually provide a solution to accessibility issues and bridge the gap to something lower and more permanent.
In any case, if we view levels as high, near high, or on the way down why do we continue with 30 year fluctuations?
2001 Home Rates Were Very Low But They Came Down in 2002
Now back to those 2001 mortgage rates. The best way to describe them was flat. Very, very flat.
However, they averaged 8% in 2000, so the 7% average was a relative gain.
Then the following year, they dropped almost another full percentage point. So 8% went down to 7% and on to 6%.
They then chose to stay in the 5 to 6 year range until the housing market crashed in 2008.
There was a resurgence in financing in 2003 as mortgage rates approached the 4% range and people were able to save more money on the amount and time of refinancing.
Or tap their equity by refinancing and borrowing cheaply after experiencing very high rates in the past.
Maybe it will play out like that in the next few years as well. We may see all those 7%+ home owners trade in their old mortgage for a 5% rate.
But if there are expectations that rates will be much higher, it may make sense to choose a different mortgage product today, such as an ARM.
The caveat is that you are eligible for financing in the future if rates go down.
There is always some risk that you will not qualify, perhaps if you have a low credit score or lose your job.
One of these events can jeopardize a loan application and put refinancing out of reach. However, there is an argument that a loan modification can help you.
I still believe that rates will ease because if you look at the loan rate spread, they are still pricing in prepayment risk, which means lenders don’t expect today’s loans to last long.
But they will probably be stuck for most of 2025 before going down. So are we going to see another 2001 when it comes to mortgage rates? That’s anyone’s guess, but it wouldn’t be something to rule out.
Perhaps MBS investors and lenders are happy with rates where they are now and are not willing to go much lower given the uncertainty surrounding the economy. And incoming management.
So we may have to get used to it and learn to put up with it for a while. Or start seriously exploring other options such as ARMs that offer a lifetime fixed mortgage discount.
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