The Relationship Between Interest Rates & Home Buying

Would you be surprised to know that during the Great Depression when Americans were facing challenging times, more Americans were becoming homeowners than in previous decades? It seems contradictory, doesn’t it? The 1930-1940s were hard times and yet homeownership was on the rise. What was going on that made homeownership possible? It was around this time when the Federal Housing Administration (known as the FHA) was established. The FHA introduced the 30-year fixed-rate mortgage. This type of mortgage was a game-changer making homeownership possible for millions. Prior to having access to the 30-year mortgage, only one in ten American was able to own a home.

What is the relationship between interest rates and home buying?

The short answer is when the interest rate is lower, more are often able to afford taking on mortgage loan. The lower interest rate often translates into having a lower monthly mortgage payment. In comparison, with a higher interest rate, homebuying can be more expensive which pushes the monthly mortgage payment higher.   

What does history tell us?

According to Freddie Mac who has been tracking rates since April 1971, here’s the data:

From 1971-1979, the mortgage rates ranged between 7.23% to 12.9% with the median rate being 8.89%

From 1980-1989, the mortgage rates ranged between 9.03% to 18.63% with the median rate being 12.82%

From 1990-1999, the mortgage rates ranged between 6.49% to 10.67% with the median rate being 7.88%

From 2000-2009, the mortgage rates ranged between 4.71% to 8.64% with the median rate being 6.18%

From 2010-2019, the mortgage rates ranged between 3.31% to 5.21% with the median rate being 4.03%

From 2020-present, the mortgage rates ranged between 2.65% to 7.79% with the median rate being 5.1%

This information tells us that interest rates have fluctuated over the decades and they will continue to do so.

Should you consider refinancing your mortgage loan?

Whenever the interest rate lowers and you can save money, it’s wise to explore refinancing to see if it’s the right move for you. During the 2020s when mortgage rates dropped to an all-time low, many took the opportunity to refinance. Because of this initiative, 86% of existing mortgages have an interest rate below 6% with 22% of these homeowners carrying a rate of below 3%, according to the Federal Housing Finance Agency.

As you make your decision, consider these points:

• Can you reduce ½ to ¾ of a percentage point (or more) from your current rate?
• Do you plan to stay in your current home for a longer period of time?  

If you’ve answered “yes” to both, it makes senses to talk with a mortgage lender to run the numbers and see how much you could save.

If you’ve answered “no,” the timing isn’t ideal for your situation. For instance, if you plan to sell your home soon, the expenses of refinancing now won’t be as beneficial.

Tracking the Market Updates

To help clients stay in-the-know on market updates, follow me on social media or click Market Updates tab on my website, where you can view my Weekly Market Updates—Houston’s weekly real estate market snapshot. Each graphic will show you new listings, pending listings, closings, and showing percentages. Regardless of where the interest rate is hovering there will always be those selling and buying homes. I’m committed to helping clients find the best home to match their budget. Reach out any time. I’m here to help.

Since 2004 Sara Lyn Nguyen continues to bring a wealth of knowledge and expertise about buying and selling real estate around the Houston area to those she serves. Sara is a multi-year award winning REALTOR® and relocation specialist where her clients trust her to have up-to-date information on the real estate market. She has been one of Gary Greene’s Multi-Million Dollar Top Producers, and citywide was the #2 Top Producing agent in 2020, #3 in 2021, and #2 in 2022. When it’s time to buy, sell, invest, or relocate speak with a trusted professional knowledgeable in the homes and neighborhoods of Fort Bend/Sugar Land and the surrounding region.