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Are Interest Rates THAT High?Submitted by Sound Foundation Wealth Advisors on August 28th, 2023
Exploring Mortgage Interest Rates: A Look Back in Time and the Role of the 10-Year Treasury Yield
When it comes to buying homes and investing, one important thing to understand is how mortgage interest rates work. These rates can go up and down, and they're influenced by different economic factors. In this article, we'll summarize the history of mortgage interest rates and how the "10-Year Treasury Yield" affects them.
A Trip Through Time: Mortgage Interest Rates
Mortgage interest rates have changed a lot over the years. To understand why today's rates are not that high compared to the past, let's take a quick look at different times in history.
1970s and 1980s: Very High Rates Back in the 1970s and 1980s, mortgage interest rates were really high. They could even be more than 18%! This happened because the economy wasn't stable, and prices were going up a lot. Borrowing money to buy a home was tough during this time.
1990s to Early 2000s: Not Too Crazy In the 1990s, things started to get better, and mortgage rates went down a bit. They were usually between 7% and 9%. People could buy homes without facing too much trouble. This continued into the early 2000s.
Mid-2000s: Housing Bubble and Big Problem Around the mid-2000s, something called the "housing bubble" happened. People were buying lots of houses because they thought prices would keep going up. Mortgage rates were lower during this time. But then the bubble burst, and the financial crisis came. To help the economy, interest rates were made very low.
The 10-Year Treasury Yield: What is it and how does it work?
The 10-Year Treasury Yield is something that tells us about the economy. It shows how much interest the government has to pay when it borrows money for ten years. This number affects mortgage rates too.
Here's something important to know: when the 10-Year Treasury Yield goes up, mortgage rates often go up. When the Yield goes down, mortgage rates tend to go down too. This happens because when the economy is doing well, people want to invest in more risky things, so they ask for more interest. This pushes up mortgage rates.
If we look at the past, we can see how the 10-Year Treasury Yield and mortgage rates are connected. During the 1980s, when the economy was not great, the Yield was high, which also made mortgage rates high. After the 2008 crisis, the Yield was very low, and mortgage rates became really low too.
Today's Picture: What's Happening Now
Right now, as of August 2023, mortgage rates are not super high in the grade scheme of things. They're around 7% for a 30 year mortgage based on a quick Google Search. If we compare this to the really high rates in the past, we can see that things are kind of okay now. This is because the economy is doing better, and the people who manage the money are being more careful than before.
Understanding mortgage interest rates is like going on a journey through time. They go up and down because of different reasons like the economy and how people feel about money. The 10-Year Treasury Yield helps us see how things might change. Even though rates were much higher before, the rates today are at a place to provide good opportunities to buy homes. As we keep learning and watching, we can make smarter choices when we buy homes or invest in them.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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