Much like 2023, the 2000 economy was seen as too hot, fueled in part by “dot-com” businesses first monetizing the internet.
Mortgage rates have surged to their highest level since 2000 – with hints they’ll go higher – as the Federal Reserve plays housing’s “Grinch” to cool the economy.My trusty spreadsheet looked at the rates on the average 30-year fixed mortgage from a survey by Freddie Mac. To help explain home loan swings, I compared rates with the Consumer Price Index’s inflation rate.The average 30-year mortgage rate was 7.49% for the week, up from 7.31% a week ago and the eighth consecutive week above 7%.
Remember it’s the Fed’s job to keep inflation moderate. So in Grinch-like fashion, the central bank uses its rate-nudging powers to chill the economic party when the cost of living seems out of control. It’s also worth noting the inflation that put mortgage rates at 8% in 2000 was a seemingly meek 3.5%. But that was roughly double 1998 and folks had memories of 1970s double-digit inflation in their heads.A mild recession hit the nation in 2001 as joblessness rose to a four-year high. GDP growth, which was 3% in 2000, fell to almost zero the next year.
It’s a key relationship because lenders, and the investors who buy mortgages, want to get paid an interest rate well above the inflation rate. This premium rate varies over time. It’s a mortgage pricing variable that the Fed doesn’t control.Then consider August 2023, the latest month with full inflation stats. The 7.1% average mortgage rate came with 3.7% inflation – only a 3.4-point gap.From 1972 through 2000, mortgage rates averaged 9.9% as inflation ran 5.2% – that’s a 4.7-point gap.
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