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Investing in your home

When looking at any interest rate forecast it is often helpful to look back first to see where things have been. First, for some historical perspective on interest rates:

Decade                        Lowest Rate                Highest Rate

1970’s                         7.23% (1972)               12.90% (1979)

1980’s                         9.03% (1997)               18.63% (1981)

1990’s                         6.49% (1998)               10.67% (1990)

2000’s                        4.71% (2009)              8.64% (2000)

2010’s                         3.31% (2012)               5.21% (2010)

More recently, during 2017 interest rates for a 30-year fixed rate mortgage peaked in Mid-March at 4.44%. By the end of 2017, mortgage interest rates on the same 30-year fixed rate mortgage had fallen to 4.15%.  Mortgage interest rates ended 2017 lower than what many had projected.

As always, at the beginning of 2018 there were lots of predictions regarding what would happen with interest rates in 2018. The one common denominator in all the projections was the expectation that mortgage interest rates would rise in 2018.  100% guaranteed.  Here were a couple of the predictions from a couple of the largest housing and mortgage groups for the 30-year fixed-rate mortgage:

  • The Mortgage Bankers Association predicted mortgage interest rates would rise to 4.6% in 2018
  • The National Association of Realtors expected mortgage interest rates to be around 4.5% at the end of 2018
  • predicted that mortgage interest rates would average 4.6% for the whole year and reach 5% by year-end

Where we are now?

As we sit at the mid-point of the year, mortgage interest rates have risen at a faster pace and to a higher level than most predicted at the beginning of the year. According to loan software company Ellie Mae, which processes more than 3 million loans per year, here is data on interest rates for May 2018:

  • Conventional 30-year mortgage rates averaged 4.86%
  • FHA 30-year mortgage rates averaged 4.89%
  • VA 30-year mortgage interest rates averaged 4.67%At the beginning of July rates are slightly lower than they were in late May after a recovery in June. Currently, conventional 30 year mortgage interest rates are between 4.625% and 4.75%.

Where are we headed?

As we head into the second half of the year we know a few things. The Federal Reserve intends to continue raising short term interest rates since unemployment is low and is expected to go lower. Also, inflation is close to their objective. The Federal Reserve does not want the U.S. economy to get too hot too fast since overheated growth can lead to inflation and difficulties for the economy. The next rate hikes are expected to happen in September and December.

Additionally, the economy continues to perform well and put upward pressure on rates. Mortgage rates tend to be higher when the economy is doing well. This is because inflation takes off and investors seek higher returns than mortgage bonds can offer. In response, mortgage interest rates must rise to keep investors interested in them at all.


For the most part the news is good. The economy is performing well, people have jobs, and they are likely to get a raise. Although they have risen in 2018, mortgage interest rates are well below their historical averages. This is all good news. However, if you’re in the market to buy a home or refinance this year, don’t expect rates to drop. It is likely that mortgage interest rates will rise over the second half of the year and will likely end the year around 5% for a 30-year fixed rate mortgage.