Lately, I’ve heard a lot of people say that mortgage rates are “average” or “normal.”
As in, there are no highs or lows. They are just normal.
This is often answered by someone pointing out that they are much higher than they were a few years ago.
In some ways, it feels like dismissal that the prices are high today. And it’s usually accompanied by something like, “Do you know how high prices were when I bought my first home?!”
The problem is that it doesn’t help anyone. Who cares what they were decades ago. Or what they’ve been doing since the 1970s?
What is the Historical Average 30 Year Mortgage Rate?
Although it doesn’t matter how long the 30-year fixed rate is, I can tell you again.
I’ve done some research and put in some time and spreadsheets compiling Freddie Mac’s historical data, so it would be a waste not to share it.
From 1972, the first complete year Freddie Mac compiled loan rate data, through the end of 2023, 30-year fixed rate is around 7.75%.
Technically 7.74%, but who’s counting (one basis point)?
At a glance, the 30-year average reached 6.78%, according to the company’s latest Primary Mortgage Market Survey (PMMS).
So someone can tell you unequivocally that the prices are not up at the moment. After all, they are almost a full percentage point below their long-term average.
They can also bring up those infamous 1980s mortgage rates in the double digits.
But does this mean anything to the would-be home buyer facing today’s all-time high prices? Or a recent home buyer looking for rate relief and a term refinance?
Probably not. It’s really informative. Or a marketing ploy to make you believe the prices aren’t that bad.
I Don’t Like It When People Say Mortgage Rates Are Average (Or Average)
As I noted earlier, many people throw around the idea that loan rates are just average today. Or normal.
In other words, don’t argue. They went well. They are enough. They have become very bad. Blah blah blah.
The problem is, this does not capture the latest levels, while they are in the 2-3% range. And it doesn’t really take into account that rates have been in the 2-4% range for most of the last decade.
Although people may forget, you could get a fixed 30 year in the high-2% range from 2012 and 2013.
This was not just an epidemic. Simply put, the lowest mortgage rates have been around for the longest time in recent history.
Basically since the early 2000s housing crisis, they’ve been very low.
It wasn’t until mid-2022 that mortgage rates increased significantly, which means it’s still a new development.
And something many prospective home buyers (and existing home owners) are still reconciling.
So telling someone, “Relax, it’s normal.” Or that they are “average” doesn’t offer much comfort.
They can easily respond by saying, “Well, they were 2% a few years ago and now they’re 7%.
It was not just the magnitude of the change, but also the speed of the change. Mortgage rates have more than doubled in less than a year.
And it has almost tripled in less than two years. That’s unprecedented, even if the numbers pale in comparison to the double digits seen in the 1980s.
Just Tell People the Truth About Mortgage Rates
If you work in the mortgage industry, or are a real estate agent, don’t tell people that mortgage rates are average or typical.
Just be honest and tell them they are much higher than before. This level of transparency can work to your advantage.
You’re not trying to trick them into buying a home or taking out a loan. You have to be their guide and partner, the person who helps them make sense of the ever-changing market.
And if you take that path, it might make you stand out from the crowd.
I will never forget the real estate agent I met who told me not to sell the property. He said to keep it for a long time and make it appreciate the value.
He was intentionally left out of the list because he was honest. If/when I sell that property, you will be at the top of my list for that reason.
The same goes for someone who needs a mortgage. Being honest can help you get their business in the future, even if not today.
Additionally, they may refer you to family, friends, co-workers, etc. So there is absolutely no harm in calling a spade a spade here.
Give them a complete picture. Show them where prices are today, where they were a year ago, two years ago, and where they will be in 2025 and beyond.
Source link
