Never say never, but if you're waiting for mortgage rates to drop as low as 4% any time soon, you're likely to be disappointed.
Stick with us here, though. We may be able to offer a few ideas to anyone hoping to buy a home.
A matter of perspective
I enjoyed time with three high school friends this past weekend. My husband (and dogs) were kind enough to visit one of our sons for a few days, leaving the house to the four old friends. As we sat on the patio chatting, one of my friends recalled how excited she and her husband were to snag a rate of 14% when they purchased their first home in 1983.
Given that the average rate on a 30-year fixed mortgage hit 18.53% in October 1981, it's no wonder they thought they'd hit the jackpot. And yes, home prices were much lower back then, but we'll touch on that in a moment.
My friend's comment made me curious about the ups and downs my husband and I have experienced as we've moved around, purchasing 10 homes in the process. So, this morning I checked the Federal Reserve website to see what the average rates were when we purchased each of those homes. Here's what I found:
| Month and Year | Average Rate on 30-Year Fixed Mortgage |
|---|---|
| November 1980 | 14.28% |
| April 1984 | 13.58% |
| July 1988 | 10.46% |
| March 1990 | 10.26% |
| March 1993 | 7.47% |
| July 2002 | 6.49% |
| July 2006 | 6.79% |
| May 2015 | 3.85% |
| September 2017 | 3.78% |
| July 2022 | 5.50% |
Data source: Federal Reserve Bank of St. Louis
Creative financing
Given the fluctuating interest rates, several of our purchases might not have been possible without a little creative financing.
Home purchased in 1980
There is no way we could have afforded the payment on the house purchased in 1980 without assuming a VA mortgage from the previous owner. We were just leaving our teens, in college (and working), with a new baby. The average rate at the time was 14.28% and the VA loan we were assuming was at 7.25% (a rate that people told us we would never see again).
Fortunately, my husband refused to use credit cards or dine out, determined to build up our savings account instead of, you know, live like teenagers. I thought it was awful at the time, but for the first two years of our marriage, every spare dollar went into savings. By the time we found a mortgage to assume, we'd managed to scrape together $10,000. It may have been the best $10,000 we ever saved.
Home purchased in 1990
My husband had just finished his second master's degree, and we were sucking wind with educational debt. An unexpected job opportunity in another state meant trying to find a way to buy a house without knowing what kind of job I might land. Plus, by then, we had another child.
A retired couple didn't want to rent out their home, but they did like the idea of receiving regular monthly payments for the foreseeable future, so they offered an owner-finance deal. It was a win-win situation for them. At 7% interest, it offered a monthly mortgage payment we could afford and guaranteed them a 7% return. As a bonus, if we failed to make payments, they had the legal right to foreclose on the home and retake possession.
Home purchased in 1993
Moving from Iowa to Michigan meant finding yet another house we could afford. This time we lucked out by finding a place we loved on a lake. Once again, a retired couple was interested in an owner-finance deal. This time around, the previous owners charged 4% interest. They'd already purchased another property and didn't need the equity to get into their next home.
As with the house in Iowa, we made sure to include a contract clause saying we could refinance the mortgage at any time. A few years after moving in, we did just that. The rate dipped low enough for us to feel comfortable locking in a traditional mortgage.
Rather than work with a mortgage lender, 3 out of 10 times, we took an alternate route to homeownership. If you're looking for an assumable mortgage (and a homeowner willing to sell their home through assumption) or want to snag an owner-financed property, ask a licensed real estate agent to help you locate one. You may have to speak with several agents before finding someone who's willing to help, but stick with it. The right agent is out there.
I sometimes wish I could predict the future
Naturally, I can't say for certain whether mortgage rates will or won't drop to 4% again. No one can. But I can tell you this with a measure of certainty: Unless the American population is willing to remain in their current homes for the rest of their lives (and we're not), the dam will have to break and more sellers will have to list their properties for sale. As more homes hit the market, prices will naturally become more competitive.
Mortgage rates will rise and fall, depending on what's going on in the economy. Keep your eye on the number of homes for sale in your area. Once that number begins to increase, it's time to make sure you're prepared to apply for a mortgage. In the meantime, take a page from my sometimes-miserly husband's book and bank every dollar you can. Your day will come.
