It Ain’t All Bad. A Historical View of Interest Rates
November 5th, 2007 Categories: Buyers, Mortgages & Loans, Real Estate News, Sellers
At least once a week my broker forwards an email to all her agents from the head of Prosperity Mortgage. In case you don’t know, Prosperity Mortgage Virginia is a joint venture between Wells Fargo and Long & Foster. It isn’t Wells Fargo- but uses mainly Wells Fargo products, in addition to other products.
Ok- with that disclosure out of the way, I wanted to talk about interest rates. Because, well quite frankly, that’s the first thing that people ask with they start looking for a home.
“
What are interest rates?” I think people ask that question because they don’t know enough to ask anything else. Buying a mortgage is more than just considering an interest rate. It’s the big picture of how much are you paying now to live where you are, what are housing pricing doing, how do you want to live your life?
Interest rates are not static, they change and often. They trend and they fluctuate.
What Is A Trend?
A trend is something that happens over time. For instance, if you look at my chart, you will see that between 1983 and 1993 interest rates clearly trended down. It’s no coincidence that during this time short-term ARM products became popular. It’s easy to see the trend when you are looking back over time. It’s not as easy when you are in the middle of a
trend like today.
What Is A Fluctuation?
A fluctuation is a data point in a trend that can go up or down and often considered a random movement. If you look at that same time period 1983–1993, you will see that, although interest rates trended downward, not all data points were less than the one before. For example, in 1993, interest rates averaged 7.31% over the entire year, and then jumped in 1994 to 8.38%.
Interest Rates Trend Year-To-Year, but Fluctuate Month-to-Month
Mortgage interest rates are seasonal. They have high points & low points during the year. It’s easy to think of it this way: the colder the weather the lower the interest rates. Why is that? Because people don’t like to buy a new home or move in the colder months. Ok so maybe that’s not a scientific explanation- but I speak from experience.
If we have a warm winter, real estate numbers will be up. If we have a cold winter with snow or ice storms, real estate numbers will be down. August, everyone goes on vacation, so people do something else than look for homes.
You want to panic and cry that the bottom is falling out of the real estate market– ok–
that’s your opinion. But you are looking at this market as a snap shot, I do it everyday.
No one has a crystal ball. Predicting interest rates is no different that prediction the stock market. One thing is for certain, over time you are always ahead.
If you are making your decision based only on what you read in the newspaper or seeing on TV, maybe you are just finding an excuse not to buy a home- that’s ok. It’s your life and money. But if you are serious about becoming a home owner, call or email me or Peter Blizniak or Harsh Patel- both great loan officers. Everyone’s situation is different. I’m not shy in telling people, based on their situation, it just may be better for them to wait.
What a thoughtful, helpful post on interest rates–you are sort of taking the “tea leaf” mystery out of it…Northern Virgina is lucky to have you posting on mortgage interest and whether now is the time to buy or not… I’m with you– if your credit is good, your job stable, this is a GREAT time to buy. Charlotte, like northern Virginia, keeps seeing prices rise. It will cost your buyer or my buyer more in 6 months. Terry
[…] Mortgage rates – Mary De Luca over at Beltway Ramblings does a great job of explaining in everyday terms how mortgage interest rates work. […]
[…] few days ago I wrote a post on the history of interest rates over the last 30 years. I talked about trends and fluctuations. The chart from that post showed the […]