Higher Rates Equal Higher Borrowing Costs
What a difference a couple of months make. In early January of this year, the 30-year fixed-rate mortgage was hovering near the low 3% level and just above record lows. The lowest on record was seen in January of 2021 at 2.65%. But that was fairy tale land, and those bottom basement numbers could be a thing of the past. However, as we know, anything can happen. The current rate is around 5.0%.
Inflation has surged to a point where the Consumer Price Index, a measure of consumer goods and services, is at a 40-year high. That has caused bond prices to fall and yields to rise. When this occurs, borrowing costs typically increase. But the economy is cycle-driven, meaning that because higher interest rates equal higher borrowing costs, consumers will (over time) begin to spend less. The demand for goods and services will then decline, which could cause inflation to decrease.
The long-term 40-year trend for mortgage rates remains lower for now, but that could be broken with rates hovering at 5% for a 30-year fixed-rate mortgage. Currently, it seems as if the lower trend is still in place. The last time the Fed raised rates, in December 2018, which was a fourth-rate hike, mortgage rates began to fall. We have seen a sharp move higher in rates and they could be peaking. And even in the mid-4% range, borrowing costs are historically low.
Bottom line: Anytime is a good time to purchase a home. If you are secure in your employment and you feel better days are ahead for your situation, then owning a home is not only a place to live, but it is usually a good investment.