by        Matthew Graham

For Mortgage Rates, 2013 Marks Lift-Off From All-Time Lows

Dec 31 2013, 2:28PM

Mortgage rates were little-changed today, ending the year less than a quarter of a percentage point away from their highest levels in more than 2 years.  4.625% remains the most prevalently quoted rate for ideal, conforming 30yr Fixed loans  (best-execution), with the only changes being seen in the form of closing costs.

On average, rates were an eighth of a percentage point higher on several occasions in August and September this year.  Before that, we’d have to go back to April 2011 to see higher.

Despite the steep rise in rates in 2013, the average rate for the entire year (4.25%) is the second lowest on record next to 2012’s 3.75%.  The previous 3 years were each roughly 0.25% higher and 2008 was roughly a full 1.0% higher than that.  To make this easier to digest, here’s a quick recap of that info:

2008 – 6.0% 2009 – 5.0% 2010 – 4.75% 2011 – 4.5% 2012 – 3.75% 2013 – 4.25%

As we’ve discussed all year, part of the reason for the abrupt rise in rates has to do with the market perception that 2012 in the table above, looks like a long term turning point.  The silver lining to that phenomenon is that even if it turns out to be the case, it connotes a much higher probability of slower increases into 2014.  It’s even tempting to say that if history repeats itself, years like 2013 are typically followed by a recovery by the end of the following year, but there are two important caveats.

The most overt counterpoint to that historical norm is that the 1999’s rate movements were very similar to 2013’s (just talking about the pace and magnitude, not the rates themselves).  Although rates did make it most of the way back to 1999’s lows, it didn’t happen until 12/31/2000 and those improvements didn’t even start showing up until the Fall of 2000.  After that, it wasn’t until the middle of 2001 that rates finally broke 1999’s lows.

The other significant caveat to hoping history repeats in some way is that history has been one-sided for the better part of 30 years.  After rates topped out in the early 80’s and corrected sharply from 84-86, rates entered a remarkably linear era of constant improvement.  Sure, the movement from one end of the range to the other seemed severe when it happened abruptly (87, 94, 99, 03, 09, and 2013), but overall, the same parallel lines that were emerging in the early 90’s have contained all the mortgage rate movement since then.

To state the obvious, of course history is going to look like it’s been repeating itself if the same thing has been happening for most of the time that most anyone with an opinion has been old enough to have one.  If we’re considering a long term shift in that decades-long trend, the extent to which we can expect 2014 to behave like 1994 or 2000 is limited.  There will be pockets of recovery–perhaps even big ones–but in looking back on 2013, it’s very likely we’ve just seen the lift-off from 2012’s all-time lows.

(The “frosting side” of that otherwise unpalatable nugget would be that the same sort of lift-off seemed like a possibility following previous generational lows, especially in 2003 and–for those not in tune with European events–2010).