Analyzing the Impact of 30-Year Mortgages vs. 1-Year CPI: A Historical Perspective

Mortgage rates have hit a 21-year high, reaching 7.09% this week, according to Freddie Mac’s weekly report on the average 30-year fixed-rate mortgage. This increase is a result of the Federal Reserve’s efforts to combat inflation and ensure the economy remains stable.

The last time mortgage rates were this high was in November, when they peaked at 7.08%. However, as inflation began to decrease from a four-decade high of 9%, concerns about a possible recession arose, leading to a drop in mortgage rates to 6.09% by February.

Despite the decrease in inflation, the economy has shown resilience, pushing rates back up to a new cyclical peak. This has had a significant impact on the affordability of homes in Southern California, where the median sales price is just $20,000 below its record high of $750,000.

The high mortgage rates have made it difficult for many potential buyers to afford homes, leading to a decrease in home sales in the region. Affordability is at a 16-year low, with only 16% of Californians financially able to buy a home, according to the California Association of Realtors.

Looking back at history, mortgage rates have been closely tied to inflation. Since April 2002, mortgage rates have been halved as inflation decreased. The 30-year fixed loan averaged 10% between 1976-2002 but has since averaged 4.8%. Meanwhile, the U.S. cost of living rose at an average annual pace of 4.7% in the 26 years ending in 2002, compared to 2.5% in the following 21 years.

As the Federal Reserve continues to monitor inflation and keep interest rates high, it is essential for potential homebuyers to consider the impact of these rates on their ability to purchase a home. The current high mortgage rates are a reminder of the importance of staying informed about economic trends and their implications for the real estate market.