Weekly Mortgage Rates Are Going Up

Mortgage rates rose in the week to the 25th The 30-year fixed-rate mortgage rate averaged 7.23%, an increase of seven basis points over the previous week’s average, as provided by Zillow NerdWallet. (A basis point is one hundredth of a percentage point.)

Interest rates on 30-year fixed-rate loans have been fluctuating in the general vicinity of 7% for more than a year, which causes considerable pain to home buyers. The rise in mortgage rates in recent years has attracted a lot of attention — and anger. While buyers are trying to find their way into affordable homes, interest rates definitely seem to be the villain of the story. But are the prices the real villain?

Let’s look back a little at the last time when the USA was in a comparable rate environment, approximately from the winter of 2000 to the spring of 2002. As of April 2002, J. Lo is at the top of the charts. Tiger Woods is the third golfer to win two Masters tournaments in a row. “The Scorpion King” with Dwayne “the Rock” Johnson is a box office hit. And the interest rates on 30-year fixed-rate mortgages are 7%.

Here we are, 22 years after. Jennifer Lopez’s recent album was released in February. Tiger denies his 26th Dwayne Johnson has not starred in a movie yet this year, but the Rock has starred in the main event WrestleMania. And fixed interest rates over 30 years? Yes, they came back to 7%.

With so many things that are strangely the same, let’s explain why the current 7% rates are different. This is not only because in 2002 this slang would have been completely follish for someone.

Since April is not over yet, we can not look at the average real estate prices for the month. But we can look at the March 2024 data that has just been published. Last month, the average price of existing homes was $393,500, according to the National Association of Realtors.

You might want to cover your eyes for this one. In March 2002, the average selling price for an existing home was $158,200, according to NAR.

Okay, you could say, but what about inflation? Well, if we take this median price from March 2002 and put it in dollars from 2024, we get $ 276,347. So it’s not just about inflation or the fact that a dollar is no longer buying as much as it used to. The fact is that real estate prices, especially in the 2020s, have risen much faster than overall inflation.

Let’s look at how these prices would translate into costs at these two different times. We are assuming a mortgage rate of 7%, a down payment of 10%, and to keep things a little tidier, we will set aside additional housing costs such as property taxes and insurance, and just look at principal and interest. At 2002 prices, the monthly principal and interest would be 947 monthly. At today’s prices? That’s $2,356.

It’s not that the US has never seen mortgage rates of 7% before. That’s absolutely the matter, and it’s much worse than that — the all-time high was over 18% in 1981. What is new is the combination of these interest rates and the very high home prices. Since the average home price has increased by 18.9 percent in the last three years, the prices may not be great, but it feels like the prices are the real villain.

What should a home buyer do? Maybe consider a new building. While Nar data shows that sales of existing homes fell in March, figures from the US Census Bureau show that sales of new homes have increased. New buildings can provide a more buyer-friendly environment. Home builders can offer incentives to the buyer, such as price buybacks-and unlike many home sellers, they are not faced with buying a house even in this market.