High mortgage rates? Let’s keep it in perspective.

Mortgage rates are on the rise once again.  Both stocks and bonds have been selling off resulting in bonds having to increase their attractiveness with offering higher yields.  The result is higher mortgage rates.

But let’s keep this in perspective.  An average 30-year fixed rate today as I write this is 6.5%.  Is that high?  Compared to the 5.75% of earlier this year and the 5.25% of 2003, yes it is.  But historically, 6.5% is a GREAT interest rate to buy a home.

Here are some rates from the past:  November 1983 – 13.5%.  March 1990 – 10.8%.  June 1996 – 8.0%.  May 2000, 8.4%.  July 2006 - 7.0% and June 2007 – 7.0%.  So is 6.5% a “high” interest rate.  I don’t think so.

What a crazy market!

With this crazy market, there are many concerns and fears about personal savings.  It is very frustrating to watch hard earned dollars evaporate, but sometimes a historical perspective can help.  We are clearly in the midst of a brutal bear market that began on October 9th of 2007.  Since that time, Stocks have declined by a staggering 41% as measured by the S&P 500.  A decline of 20% constitutes a bear market…and a 10% decline is a “correction”.  The last bear market which occurred between March 24th of 2000 and October 9th 2002 (yes, October 9th), and saw a 49% drop.  Overall, the average bear market lasts for 12.3 months, with the average decline being 32%.

 

The current bear market is right in line with the average historical time frames, and the extent of the decline is worse than previous bear market averages, but still slightly better than the bottom made in 2002.  So the historical data might suggest that we could be nearing a bottom.  Many people will say that it’s different this time, and that we have never had a financial crisis like we are seeing.  While that is true, it’s always different, and it’s always something.  The last bear market was driven by fears of terrorism and fueled by a dot com/tech bubble…both of which had never been seen before either. 

 

As for the date October 9th, which was yesterday, it’s interesting to note that October 9th of 2002 marked the end of the last bear market.  And October 9th 2007 was the beginning of the present one.  While it may just be coincidence, it will be interesting to see if yesterday’s low has some significance in stock market history. 

  

One bright spot is that oil prices are plunging, falling from a high of $147 last July to current levels of around $80 – at least making a trip to fill up at the gas station slightly more “bearable.”   (Yes, a little pun intended there.)

 

As far as mortgage rates go, the news isn’t much better than it is for stocks.  The weird part of this is usually when the stock market is having a bad day, mortgage rates will have a good day as investors are pulling money out of stocks and parking it in bonds.  But money is flowing out of bonds as well.  Where is the money going?  Maybe under mattresses – who knows.  But it is important to note that even though rates are rising, they are not high.  As I write this the 30 year mortgage rate is right around 6.375%.  That is not a bad rate.  In fact, it is a very good rate to borrow money for a home. 

 

Let’s all keep our chins up.  This, too, shall pass.