The Great Appreciation Of Home Prices Is Now Over

Abstract

Decades of Falling Mortgage Rates In January 2021, mortgage rates likely bottomed out after trending lower for decades. With a 2.74% mortgage interest rate, the monthly payment on a $343,000 mortgage in January 2021 would have been $1,400 per month. With a 9.90% mortgage interest rate-the rate back in January 1990-you could only borrow $161,000 with that same $1,400 monthly payment. In the future, the Fed will raise and lower interest rates as usual but the overall trend won't be lower and lower rates like it was for the last 30-plus years until January 2021. Now, theoretically, the Fed could change its current policies and make the Federal Funds rate go below 0%. That would also lower mortgage rates below January 2021 levels but a negative Federal Funds rate seems unlikely. The net effect is that unless the Fed gets a new tool in its toolkit, the Fed won't be able to lower mortgage rates more than they did in the recent past, and in the future, mortgage rates aren't likely to go lower than they were in January 2021. A Future Without Much Real Appreciation What happens in the future if mortgage interest rates have bottomed out and we don't have generally falling mortgage interest rates pushing up real house prices and home-owner family wealth over the next 30 years? House prices will still go up with inflation but, nationally, real, inflation-adjusted prices wouldn't go up much, or at all, for the foreseeable future in this scenario.