A bit of history:

  • In the early 1980s mortgage interest rates peaked above 18%.
  • By 1986 rates were down to 10% and in they1990 began a long, slow decline.
  • Between 2003 and 2008 interest rates generally hovered in 6% range.
  • In early 2009, following the mortgage industry crisis in 2007-2008, the average interest rate for a conventional mortgage loan fell below 5%, and since 2012 it has bounced back and forth around 4%.

For several years after 2009 I told my clients that "interest rates can't stay this low forever," but I stopped because it began to feel like the market and the mortgage industry might keep rates very low for a long time to come.  The rise and fall of mortgage interest rates are not directly affected by decisions made by the Fed, but instead move more in concert with the 10-year Treasury yield.  The state of the global economy in recent years has kept demand for those T-bills in demand, which has kept yields very low.  As a consequence mortgage rates have been able to stay low as well and still be attractive to investors in the secondary mortgage market.

That pattern is continuing, as evidenced by this article today:

U.S. long-term mortgage rates fall sharply

"Fall sharply" in that headline means that the national average reported yesterday is down a full percentage point from a year ago -- 3.6% versus 4.59%!

This change appears to be linked to special concerns about the U.S.-China trade relationship, but daily reports about the world economy in general and about where we are in this very long business cycle feed uncertainty.  I still don't believe interest rates can stay this low forever, but I will not hazard a prediction about when we might get back to 5% or above.