I. Rates are up again today – and one of the reasons is a lesson all of us need to remember.
More importantly – things were much worse only three years ago! And – we all survived (so don’t jump off a high roof… yet).
We’ve all heard the comparisons to 1981 when mortgage rates hit 18% – and boomers were still walking to school backward, uphill, in blizzards, without shoes…
And nobody cares because it was decades ago.
II. 2023 – The Year of Terror! (Homes Are More Affordable Today)
BUT – we ALL lived through 2023.
(Rumor has it that Taylor Sheridan is making a TV series called “2023.” It’s about a bunch of mortgage bankers watching interest rates and running around the office yelling, “holy sh*t!” I can’t wait to watch it.)
Today’s average interest rate is 7.5%.
In September of 2023, rates were higher – and by October, the average rate was over 8%.
So, we have a full 1/2% to go before we even get back to 2023 rates.
And oh yeah… rates were this high in the spring of 2024 too.
But here is the really encouraging news:
- Median fulltime paychecks are up 12% since the fall of 2023! (Per BLS data)
- Home prices have flatlined across much of America since the fall of 2023 (the exceptions are San Francisco (AI Land), the Northeast, and the Midwest).
So, homes are actually more affordable today across the Sunbelt, the Southeast, and much of the West.
III. Why Did Rates Shoot Up Today?
Rates shot up today for several reasons:
- Trump rejected Iran’s peace talk proposals to ostensibly open the Strait of Hormuz
- It is becoming more likely the Fed will hike again this year.
- The economy remains hot, per Axios, in the sectors outside of mortgages and real estate (AI, data centers, energy, manufacturing, etc.).
So, once again, growth expectations are pushing rates higher.
This is a lesson I can’t repeat enough. Hot economies result in higher rates.
Today’s high rates may break the economy, but for now, growth remains on the horizon, and rates respond accordingly.
IV. The Spread Between The 10-Year And Mortgages Is Rising (Bad News & Good News)
I often remind readers that the spread was as high as 3% in 2023, which is why mortgage rates were so much higher – and that the spread fell to 2% last year.
The spread is rising again – which is concerning because it will push rates higher.
But one of the reasons the spread is rising is good news: investors expect today’s high-rate mortgages to refinance soon – so they demand higher yields.
So, the wisdom of crowds is expecting lower rates.
V. SELLERS CAN OFFER 4.5%!
This is another plea to encourage sellers to offer temporary buydowns – the perfect antidote for high rates.
Yes, a 3-2-1 buydown is expensive for sellers, but buydowns are often much cheaper than price discounts.
And yes, sellers can offer rates as low as 4.5% with a seller-paid 3-2-1 temporary buydown.
