Rates are incredibly low…how low? Well, I was curious, so I decided to check it out and I figured I would pass on the information I found in my research. I checked out a few websites that provide historic rates, but I figured I would go straight to the source, Freddie Mac to gather my data. Here is what I found:
Highs & Lows
Freddie Mac been recording average interest rates since about April of 1971. All of my results will be since that time frame, since that is the data I am working from. I wanted to know what the highest and lowest monthly average has been.
Highest: 18.45% in October of 1981
Lowest: 5.23% in June of 2003
After a quick calculation, I determined that the average rate, since April, 1971, is 9.11%.
How Do Today’s Rates Compare?
Here is a chart of the average monthly rates for 2008:
January 5.76 February 5.92 March 5.97 April 5.92 May 6.04 June 6.32 July 6.43 August 6.48 September 6.04 October 6.2 November 6.09 December 5.29 Average 6.04
Historically, you can see that rates are very low. An average for a year of 6.04%, which the lowest monthly rate we have seen is at 5.23%. Look at December of 2008 – we were at 5.29%, only .06% difference from the lowest rate since 1971.
Now consider the weekly survey of rates, according to Freddie Mac, for January 8 was 5.01%!!! That makes current rates at HISTORIC lows.
What Does This Mean?
The lowest historic rates means the cost to borrow money for a home is less expensive then it has been since 1971! Let’s compare – what would the monthly principal and interest payment be at the highest, lowest, average and current rates be for a $200,000 mortgage amount on a 30 year fixed term:
Highest: $3,087.71
Lowest: $1,101.93
Average: $1,625.10
Current: $1074.87
Look at the spread between the highest and current!! That is $2,012.84 per month!. Over 5 years it would be $120,770. Crazy, huh?! I think so.
Consider the Cost of Homes, Too!
Not only are rates are historically low levels, but home prices are also low. If you want the raw data, check out the Office of Federal Housing Enterprise Oversight’s Historic Price Index Data. The data shows that a home in October of 2008 is at, about, the same price as a home in May of 2005. There have only been 10 periods of declining home prices month to month since January 1991, according to this data. The longest continuous drop in prices month to month, before 2007/2008, was from March 1992 to June 1992 (4 months). Compare that to May 2007 to January 2008 where it dropped every single month for 9 months, went up in February 2008 and then dropped again for 8 more months between March 2008 and Oct 2008 (when the data ends). This means homes are cheap!! As cheap as they were in 2005. That doesn’t happen, so take advantage of it.
So What Should I Do?
Buy! Refinance! Invest! Take advanatage of these great rates, but do it wisely. Check out a few posts related to refinancing or purchasing:
Lending a Hand,
Scott Wynn
[...] rates are at! Although a few months old at this point, Scott’s post about rates being at all-time lows is still very relevant and provides some insight as to where we have been and where we are [...]