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Historical Mortgage Rates

Are We Switching From a Sellers to a Buyers Real Estate Market?

If there is one constant in life, it is that the real estate market will go through an almost continuous cycle of ups and downs resulting in alternating buyer’s and seller’s markets.

According to Investopedia “A buyer’s market refers to a situation in which supply exceeds demand, giving purchasers an advantage over sellers in price negotiations”.  Conversely, “A seller’s market is a market condition characterized by a shortage of goods available for sale, resulting in pricing power for the seller. A seller’s market is a term commonly applied to the property market when low supply meets high demand.”

Naturally, throughout the country, there are different “markets” some of which are quite localized. For instance, a city might have a neighborhood that has recently been revitalized and is in high demand by the “in crowd” and so there is a “Seller’s market” for homes in that neighborhood. Thus sellers have the upper hand and can virtually name their price. And then just a few miles (or even blocks) away there can be a neighborhood that is still run down and needs revitalization and houses are cheap and no one seems to want them. Thus it is a “buyer’s market”. But in this article, we are going to look at bigger factors that are affecting the overall real estate market.

Interest Rates at Historic Lows

With the FED lowering interest rates virtually to zero percent, banks can also lower interest rates putting buyers are in a great position. From this chart, we can see that the average 30-year mortgage in 2019 was already low by historic standards, but the average rate was still above 4%.

Historical Mortgage Rates

Year Lowest Rate Highest Rate Average Rate
2019 3.63% 5.34% 4.25%
2018 3.95% 4.94% 4.54%
2017 3.78% 4.30% 3.99%
2016 3.41% 4.32% 3.65%
2015 3.59% 4.09% 3.85%
2014 3.80% 4.53% 4.17%
2013 3.34% 4.58% 3.98%
2012 3.31% 4.08% 3.66%
2011 3.91% 5.05% 4.45%
2010 4.17% 5.21% 4.69%

On the above table from ValuePenguin, we can see the lowest rate available in 2019 was 3.63%. As of this writing, the average rate on a 30-year mortgage is 3.55% below the lowest rate possible last year.

The Impact of a Pandemic

The country is going through a once in a lifetime pandemic. Nobody really knows what to expect in the future. Unemployment is mounting and as happened in 2008, uncertainty brings caution. When that happens, sellers may be wondering if they will be able to afford their mortgage and may be tempted to sell. That puts buyers in the driver’s seat.

The Economy is Faltering

The economy has been strong in recent years, giving sellers the advantage. That may be changing. If the economy falters severely, Sellers will no longer be able to hold out for their optimal price. Buyers may dry up, and values will plunge. In order to sell, current homeowners may be forced to accept a price today that they never would have dreamed of a year ago.

If the combined effects of the economy and the pandemic continue home values could start decreasing. This is often the result of a deluge of homes on the market. This also means that luxury homes become more affordable. Lower interest rates combined with a softer real estate market means that buyers who still have secure jobs may be able to afford a nicer home.

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