What Is the Expected Trend for Interest Rates?

A Historical Perspective on Interest Rates

Understanding Recent Rate Trends

We’ve seen a nice downward trend in interest rates over the past few months, and applying a historical lens to rates may put this into perspective.

The Fed’s Role in Shaping Rates

It’s essential to note that The Federal Reserve stepped in during the Great Recession from the mortgage debacle in the late 2000s and during Covid-19. By that, The Fed (the government) tried to keep our economy churning by buying a ton of government debt. That forced rates lower. Why? When bonds are in demand, the issuers don’t have to offer a higher rate to attract buyers. You can argue that it was “artificially” lower as it was not a market-driven event, as the government purchased its debt.

Post-Pandemic Rate Increases

Then, after the pandemic, The Fed started selling all this debt with little market demand, forcing higher rates. This event, coupled with the inflation stemming from the Covid-19 crisis, caused rates to increase. With the inflation sirens wailing, The Fed kept raising the Fed Funds rate to combat inflation. Today, we are beginning to see the Fed’s medicine take effect as rates have truly trended down, and the Fed itself has signaled that the Fed Funds rate will decrease over the next several months.

The Historical Context of Interest Rates

As you can see, rates have been in the 3% to 5% range since 2012 until 2022. When I speak to borrowers under 45, they have no historical context on rates. All their adult lives, rates were below 4% and why shouldn’t they return? If you rewind the clock before the Great Recession, rates were well above 6%. We are now back to normal.

Future-Forward with a Tailored Approach

For those of us under the age of 45 years, you may not remember rates above 5%. However, this illustrates that the rates we are seeing are normal. Set an appointment with Joel today to a tailored home purchase strategy for your goals.