We often hear the phrase "history repeats itself." Well, is this true for the mortgage rate and housing industry?
In most financial markets history does, in fact, repeat itself. In most industrialized stock markets history has repeated itself over and over. Bull and bear markets seem to coincide with specific events that relate very closely to past events. The problem with comparing this to the mortgage industry is that there are no hard facts about the distant past. Mortgage rate survey data has only been collected since 1971 and the entire housing industry has drastically changed over the last 80 years.
When looking at historical mortgage rates, it is quite obvious that the current long term trend is down. During the last major recessionary period of the early 1980s mortgage rates peaked at 17.5%. Since that time, rates have steadily declined to their current levels of today; around 4.8%. There have been upticks along the way, but the overall trend is down. At one point, there is going to be a bottom in mortgage rates which leads to a steady increase. It is highly unlikely that rates will ever get close to 17.5% again, but if history repeats itself, they are going to have to increase well above todays historically low levels.
If we know history is likely to repeat itself, now might be the best time in many of our lifetimes to buy a home or refinance. Although many Americans are in dire straights financially, this is an opportunity that cannot be passed up. It is alluring to try to predict the exact bottom of mortgage rates, but when looking at the larger picture of mortgage rate history, now is the best time to buy.
