Recently I’ve heard a lot of people say that mortgage rates are “average” or “normal.”
As in it’s not high or low. They’re just typical.
This is usually in response to someone pointing out that they are much higher than they were just two years ago.
In a way, it feels like a rejection of the fact that interest rates are high today. It’s usually accompanied by something like, “Do you know how high prices were when I bought my first house?!”
The problem is that this doesn’t help anyone. Who cares what they were like decades ago. Or what their average has been since the 1970s?
What is the historical average 30-year mortgage rate?
Although it doesn’t necessarily matter what the long-term average of a 30-year constant average is, I’d better tell you.
I’ve researched and dedicated some time to the spreadsheets that collect historical Freddie Mac data, so it would be a waste of time not to share them.
Since 1972, the first full year Freddie Mac has compiled mortgage rate data, through the end of 2023, The average 30-year fixed rate was about 7.75%..
Technically 7.74%, but who’s counting (1 basis point)?
At last glance, the average return over 30 years is 6.78%, according to the company’s most recent weekly Primary Mortgage Market Survey (PMMS).
So someone can tell you that the prices are not like that High at the moment. After all, it is about a full percentage point below its long-term average.
They can also point to the infamous mortgage rates in the 1980s that exceeded 10%.
But does this mean anything to a potential homebuyer facing today’s high prices? Or the recent homebuyer looking for relief with refinancing rate and term?
Maybe not. It’s really just educational. Or a sales mechanism that makes you think the prices aren’t so bad.
I don’t like it when people say mortgage rates are average (or normal).
As I mentioned earlier, many people get carried away with the idea that mortgage rates are just today’s average. Or normal.
In other words, no fuss. They are fine. They are good enough. They were worse. Blah blah blah.
The problem is that this doesn’t capture recent levels, when they were in the 2-3% range. It also largely ignores that interest rates have been in the 2% to 4% range for much of the past decade.
While people may forget, it is possible for a 30-year stumble in the high 2% range throughout 2012 and 2013.
This wasn’t just a fluke pandemic. Simply put, ultra-low mortgage rates have been around for a long time in modern history.
Since the subprime mortgage crisis of the early 2000s, it has been very low.
Fixed mortgage rates only rose in mid-2022, meaning it’s still a relatively new development.
It’s something that many potential homebuyers (and current homeowners) are still coming to terms with.
So I tell someone, “Calm down, they’re normal.” Or that being “average” doesn’t provide much solace.
They can just as easily respond by saying, “Well, it was 2% a few years ago and now it’s 7%.”
It was not just the scale of change, but also the speed of change. Mortgage rates more than doubled in less than a year.
It has nearly tripled in less than two years. This is unprecedented, even if the rates pale in comparison to the double-digit rates seen in the 1980s.
Just tell people the truth about mortgage rates
If you’re in the mortgage business, or you’re a real estate agent, don’t tell people that mortgage rates are average or normal.
Just be honest and tell them that they are much higher than they were before. This level of transparency can work to your advantage.
You’re not trying to trick them into buying a house or getting a mortgage. You’re supposed to be their guide and ally, someone who helps them understand the ever-changing market.
If you take this approach, it can make you stand out from the crowd.
I will never forget the real estate agent I met who told me not to sell a property. She said to keep it for the long term and let it appreciate in value.
She intentionally missed the list because she was being honest. If/when I sell this property, it will be at the top of my list for this reason.
The same applies to someone who needs a mortgage. Honesty can help you gain their business in the future, even if not today.
In addition, they may refer you to family, friends, colleagues, etc. So there’s absolutely no harm in calling a spade a spade here.
Give them the full picture. Show them where prices are today, where they were a year ago, two years ago, and where they could be in 2025 and beyond.
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