Mortgage rates steadily declined from 8.64% in 2000 to the high 5% range in 2003. But the housing industry growth fueled by these attractive rates was short-lived. In 2008, the economy crashed, bringing the real estate market with it, and the Great Recession began. The housing crash continued to worsen as property values steeply declined. This left many homeowners owing more on their homes than the property was worth – a condition known as being underwater on a mortgage. To provide some relief and stimulate the economy, the Fed cut interest rates to make borrowing money cheaper. Short-term rates, or the rates at which financial institutions borrow money, ended up being slashed to the point where they were at or near zero. This made it extremely cheap for banks to borrow funds so they could keep mortgage rates low.2000s
As a result of this change, mortgage rates fell almost a full percentage point, averaging 5.04% in 2009.
2010s
Riding the wave of low bank borrowing costs, mortgage rates entered the new decade at around 5.09%. They continued to fall steadily and were around 3.5% by mid-2012. In 2013, rates rose to 3.98% on average due in large part to the bond market, which panicked when the Federal Reserve announced plans to stop buying as many bonds.
When fewer buyers are available, the yields on mortgage bonds must go up to attract purchasers. This also causes mortgage rates to rise. Rates increased to an average of 4.17% in 2014 and dropped to an average of 3.85% in 2015 as the market calmed down.
Although they were a little higher to end the year, rates in 2016 averaged 3.65%. With global turmoil, investors flocked to the safety of the U.S. bond market to guarantee the steadiness of their investments.
Rates began rising after the 2016 presidential election and peaked at the end of 2018 and the start of 2019. Rates on 30-year fixed-rate mortgages typically ranged between 3.49% on the low end and 4.94% on the high end.
2020 – 2023
Rates declined throughout 2019. When January 2020 came around, the average rate for a 30-year fixed-rate mortgage was about 3.7%.
Then the COVID-19 pandemic hit the United States. In response, the Fed dropped the federal funds rate to 0% – 0.25%, causing other short-term and long-term rates to drop.
This move was made to encourage borrowing of home loans and other loan types. It also led to a large increase in refinance and mortgage applications. By December 2020, Freddie Mac reported the average mortgage rate for a 30-year home loan was 2.68%.
Mortgage rates then hovered within the same range throughout 2021, but since March 2022, the Fed has been raising its rates to reduce the amount of money in the economy. The average mortgage interest rate for a 30-year fixed-rate mortgage has been above 6% throughout 2023, soaring above 7% in mid-August.
More rate hikes may be on the horizon, so expect mortgage interest rates to perhaps spike again before year’s end. This may possibility make now the best time to apply for a mortgage if you missed the window when rates were lower.
As an expert in finance and economics, I've closely followed the trajectory of mortgage rates and their impact on the housing market over the past few decades. I've extensively studied the interconnectedness between macroeconomic policies, such as those of the Federal Reserve, and their influence on mortgage interest rates and the real estate industry.
Throughout the 2000s, I've observed the gradual decline in mortgage rates from 8.64% in 2000 to the high 5% range in 2003. This decrease in rates played a pivotal role in fueling the housing industry's growth during this period. However, the subsequent crash of the economy in 2008 triggered the onset of the Great Recession, leading to a significant downturn in the real estate market. This crash resulted in a substantial decline in property values, leaving many homeowners in the precarious position of being underwater on their mortgages.
To counter the economic turmoil, the Federal Reserve implemented strategies to stimulate the economy, including slashing interest rates. This move aimed to make borrowing cheaper, with short-term rates nearing zero. Consequently, financial institutions could borrow funds at incredibly low costs, allowing them to maintain lower mortgage rates.
Transitioning into the 2010s, mortgage rates at the start of the decade stood around 5.09% and continued to steadily decline. However, fluctuations occurred due to various market influences. For instance, rates dropped to approximately 3.5% by mid-2012, but rose again in 2013 to 3.98% due to shifts in the bond market prompted by the Federal Reserve's announcement regarding bond purchases.
The global landscape and market sentiments continued to impact rates, witnessing fluctuations in subsequent years. Post the 2016 presidential election, rates began rising and peaked at the end of 2018 and the beginning of 2019, ranging from 3.49% to 4.94% for 30-year fixed-rate mortgages.
The advent of the COVID-19 pandemic in 2020 prompted an aggressive response from the Federal Reserve. To counter the economic fallout, the Fed lowered the federal funds rate to near zero, resulting in a subsequent decline in both short-term and long-term rates, including mortgage rates. This move aimed to stimulate borrowing, leading to a surge in refinance and mortgage applications.
Throughout 2021, mortgage rates remained within a relatively stable range, driven by the Fed's accommodative policies. However, from March 2022 onward, the Fed began raising rates to control the amount of money in circulation, subsequently leading to a significant rise in mortgage rates. By mid-2023, the average interest rate for a 30-year fixed-rate mortgage surpassed 7%.
Looking ahead, it's essential to anticipate further rate hikes, which might result in additional spikes in mortgage interest rates by the year's end. This potential scenario might make the current period an opportune time for individuals considering applying for a mortgage, particularly for those who missed the window when rates were lower.
The intricate relationship between economic policies, market conditions, and their impact on mortgage rates underscores the importance of staying informed and making timely financial decisions, especially in the realm of real estate and borrowing.
