Mortgage Rates in the Past, Present, and Future

If you plan to buy a home this year, you're definitely keeping an eye on mortgage rates Because mortgage rates affect what you can afford when you take out a home loan – and affordability is a concern today – it's a good time to look at the big picture of where mortgage rates have been historically compared to where they are currently. Aside from that, understanding their relationship with inflation is critical for predicting where mortgage rates will be in the near future.

Giving Context to the Sticker Shock

Freddie Mac has been tracking the 30-year fixed mortgage rate since April of 1971. Every week, they release the results of their Primary Mortgage Market Survey, which averages mortgage application data from lenders across the country (see graph below):

Mortgage rates have risen dramatically since the beginning of last year, as shown on the right side of the graph. Even with that increase, today's rates are still lower than the 52-year average. While that historical perspective is useful, purchasers have become accustomed to mortgage rates ranging between 3% and 5%, which has been the case for the past 15 years.

That's significant because it explains why the recent increase in rates may have you feeling sticker shock despite the fact that they're close to their long-term average. While many buyers have adjusted to the higher rates over the last year, a slightly lower rate would be a welcome sight. To see if that is a feasible prospect, consider inflation.

Where Could Mortgage Rates Go in the Future? 

The Federal Reserve has been working hard to lower inflation since early 2022. That’s significant because, historically, there’s been a connection between inflation and mortgage rates (see graph below):

This graph shows a pretty reliable relationship between inflation and mortgage rates. Looking at the left side of the graph, each time inflation moves significantly (shown in blue), mortgage rates follow suit shortly after (shown in green).

The circled portion of the graph points out the most recent spike in inflation, with mortgage rates following closely behind. As inflation has moderated a bit this year, mortgage rates haven’t yet made a similar move.

That means, if history is any indicator, the market is expecting mortgage rates to follow inflation and fall. It's impossible to anticipate where mortgage rates will go with certainty, but with inflation decreasing, mortgage rates falling in the near future would fit a well-established trend. 

Bottom Line

To understand where mortgage rates may be headed, it's useful to look at where they've been in the past. There is a definite relationship between inflation and mortgage rates, and if that historical pattern remains true, the recent drop in inflation may reflect well for the future of mortgage rates and your homeownership objectives.