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. As a result of this change, mortgage rates fell almost a full percentage point, averaging 5.04% in 2009.2000s
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.
