Mortgage rates last peaked in 1982 at an average rate of 17% on a 30-year FRM. These rates generally declined for the next 30 years, bottoming in 2012 at just over 3.3%. At this time, the interest rate on the 10-year Treasury note (which lenders use to set their mortgage rates) was near zero. The last time it was this low was just after World War II, which ended the Great Depression and a prior interest rate cycle — roughly 30 years up and 30 years down.
We are now in the upswing of the cycle, as interest rates on Treasury notes and mortgages are expected to rise for the next two to three decades. Further, as in the period of rising mortgage rates from 1949-1982, prices will feel downward pressure due to the decrease in buyer purchasing power — unless wages increase to offset increasing mortgage rate results. In a very broad sense, price increases over the next few decades will be limited to the rate of consumer inflation, around 2%-3% a year.
Of course, prices will fluctuate above and below the inflation rate from year to year based on changes in local demographics, jobs, zoning and construction.
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