A few years back, the Fed began purchasing mortgage-backed securities in an effort to lower interest rates on mortgages.
As planned, mortgage rates dipped to record lows, prompting a housing recovery that at the time appeared as if it would never come.
The 30-year fixed mortgage hit its lowest point during the week ending November 21, 2012, averaging 3.31%, according to statistics from mortgage financier Freddie Mac.
About five months later, the 15-year mortgage fixed bottomed out at 2.56% during the first week of May.
Mortgage Rates About 1% Above All-Time Lows
Since then, rates on both popular loan programs have increased significantly, rising to 4.46% and 3.47%, respectively, after the Fed hinted at ending or tapering its QE program.
Rates on each are now about a percentage point above their all-time lows, but still historically cheap.
For example, the 30-year fixed averaged 17.48% back in early 1982, which is about four times current levels.
Still, it doesn’t seem good enough these days, now that borrowers have gotten a taste of something better.
It’s a weird human psychology, but once we experience something better, it’s hard to “go back” to the prior situation.
Home Buyers Think Mortgage Rates Below 5% Are “Normal”
Case in point, a new survey from property search website Redfin, which revealed that homeowners now consider mortgage rates below 5% as the norm.
The company conducted the survey in November, asking home buyers what they considered the “normal” rate for a 30-year fixed mortgage.
The overwhelming response among all those polled was 4-5%, with 53% selecting that rate range. Even worse, 27% felt a rate between 3-4% was normal.
It then slips considerably, with 12% indicating a ate between 5-6% is the norm, and small handfuls selecting rates as low as 2-3%, and others going with a rate higher than 7%.
A staggering 83% of respondents felt a normal fixed-mortgage rate was somewhere below 5%. Hmm…
If we further break it down by first-time home buyer and seasoned home buyer, the numbers aren’t much different.
In fact, seasoned home buyers seem even more delusional than first-timers. For example, 57% of seasoned buyers feel rates between 4-5% are the norm, compared to just 48% of first-timers.
However, 31% of first timers indicated a rate between 3-4% was normal, compared to just 23% of the seasoned homeowners.
Mortgage Rates Have Averaged 6.7% Since 1990
Here’s the reality of the situation. The 30-year fixed has averaged 6.7% since 1990, more than two percentage points above current levels.
And fixed mortgage rates only dipped below the 5% threshold once before March 2009. So to say consumers have gotten used to something that isn’t at all normal would be an enormous understatement.
Oh, and 40% of prospective buyers said they would be unable or unwilling to purchase a home if rates rise much more. Troubling to say the least.
Makes you wonder if this recovery is for real, or simply rate driven.
Read more: What mortgage rate should I expect?