If you're thinking of buying a home this year, I bet you're keeping an eye on mortgage rates. They really affect how much you can afford when you take out a home loan. And let's be honest, it's tough to find affordable homes these days. So, it's worth taking a step back and looking at how mortgage rates have changed over time. It's also important to understand how they're connected to inflation to get an idea of where they might be headed in the near future.

Giving Context to the Sticker Shock

Did you know that Freddie Mac has been keeping an eye on the 30-year fixed mortgage rate since way back in April 1971? They like to keep us updated every week by sharing the results of their Primary Mortgage Market Survey. Basically, they gather data from different lenders all over the country and come up with an average. Take a look at the graph below to see how things have been shaping up!

If we take a look at the right side of the graph, we can see that mortgage rates have gone up quite a bit since the beginning of last year. But hey, here's the good news: despite the increase, today's rates are still below the average for the past 52 years. Pretty cool, right? However, it's worth mentioning that buyers have become accustomed to mortgage rates ranging from 3% to 5% for the past 15 years. So, you know, that's kind of the range they're used to and comfortable with.

That's actually really important because it helps explain why you might be feeling a bit surprised by the recent increase in rates, even though they're not too far from what we typically see in the long run. I mean, a lot of buyers have gotten used to these higher rates over the past year, but I'm sure we'd all be pretty happy to see them drop a bit. To figure out if that's something we can realistically hope for, we need to take a close look at inflation.

Where Could Mortgage Rates Go in the Future?

So, check this out: The folks over at the Federal Reserve have been busting their tails to bring down inflation ever since early last year. Now, why is this a big deal? Well, historically speaking, there's been a pretty clear relationship between inflation and mortgage rates (I'll show you a graph to back it up). Pretty interesting stuff, right?

Check out this graph. It basically shows a solid connection between inflation and mortgage rates. If you focus on the left side of the graph, you'll notice that every time there's a notable change in inflation (shown in blue), mortgage rates tend to change soon after (shown in green). It's pretty interesting, right?

So, if you look at this graph here, you'll notice that the part that's circled highlights the latest jump in inflation. And guess what? Mortgage rates are right there, following closely behind. It's interesting to see that while inflation has calmed down a bit this year, mortgage rates haven't really shown the same trend.

If you look at it historically, it seems like the market is just waiting for mortgage rates to drop as inflation decreases. Now, I can't say for certain where exactly mortgage rates are headed, but based on past trends, it's highly likely that we'll see them go down soon, especially with inflation getting under control. So, hang in there, because it looks like a good time for mortgage rates to follow the usual pattern and go in the downward direction.

Bottom Line

If you want to predict where mortgage rates might be heading, it's useful to take a look at where they've been in the past. You see, there's a strong link between inflation and mortgage rates. And if we can rely on that relationship from history, then the recent drop in inflation could mean some good news for you and your dream of owning a home.