Current rates remain well below the historical average
First American Chief Economist Mark Fleming believes the housing market can still thrive even if mortgage rates reach 5%, saying talk about rising rates should be evaluated in context.
Fleming’s statement follows the 30-year, fixed mortgage rate hitting a seven-and-a-half-year high of 4.86%. He noted that most experts believe mortgage rates will continue to rise, reaching 5% in 2019.
“While today’s rates appear higher than the 3% to 3.5% rates of 2016, they remain well below the historic average of 8%,” Fleming said. “Yet, the increase in borrowing costs for home buyers, given increasing home prices, has prompted discussion about how the housing market will respond to higher rates.”
Fleming looked into the historical performance of the housing market when mortgage rates were considerably higher than today. Between 1980 and 1990, rates averaged 12.5%. In 2000, they averaged 8.05%. Rates averaged 6% between 2001 and 2009.
“The key takeaway is that people were still buying homes across all of these mortgage rate eras. Mortgage rates have adjusted in the past in response to high inflation, a technological revolution, a housing crisis, and a financial collapse,” Fleming said.
Fleming said the level of recent rates is a historical anomaly. He added that the recent higher mortgage rates are due to a near record-long economic expansion and a strong labor market. “If you think 5% is high, take a walk down mortgage memory lane,” he said.
