Updated: Interesting Intensity Of Interest Rates. 2019 to Now

I wrote this article in 2022, and I have since added as time has made evident the move forward of the housing market: 

I don't know if I can call myself a "veteran" real estate agent (yet). I've been in the game since 2016. Over the past few years here in Western Washington, I've found myself in a myriad of different types of real estate transactions. The fun thing about real estate is that it's multiplex! Like tri-plex, duplex... Just kidding, that's a bad joke. But the real estate field is varied: commercial, raw land, new construction, residential resale, fix-and-flip, investments—the list goes on. I've been fortunate enough to have been through many of these transactions and learned a whole lot.

Interest Rates and Their Impact on the Market

Many of you reading this will have known, or at least heard of, the changes in interest rates over the past few years, especially concerning residential resale—the most commonly discussed real estate transaction. If you're planning on purchasing a home, unless you're paying cash or have another type of gift, chances are you'll be using a loan. Here's how interest rates have affected the housing market from 2019 through early 2025:

2019 vs. 2022

Eerily similar, in my opinion. Just before COVID and all that came with it, August 2019 was showing natural signs of the housing market beginning to slow, and the economy was finally rebounding from the recession a decade prior. Interest rates were up, closer to where we are now; the supply of available houses for sale (also known as 'inventory') was on the rise, and homes began to take longer to sell.

2020 and 2021: A Period of Low Rates

During the pandemic, the Federal Reserve took measures to stimulate the economy, leading to historically low mortgage rates. In 2020, the average 30-year fixed mortgage rate dropped to as low as 2.65% in January 2021. This decline made borrowing more affordable, leading to a surge in homebuying activity and a competitive seller's market.

2022 to 2024: Rising Rates and Market Adjustments

As the economy recovered and inflationary pressures mounted, the Federal Reserve began tightening its monetary policy. This shift led to a steady increase in mortgage rates, with the average 30-year fixed rate reaching approximately 7.08% by the end of 2022. The higher rates contributed to a cooling of the housing market, with decreased affordability leading to a slowdown in home sales. In 2023, rates peaked at 7.79% in October, the highest since 2000. Throughout 2024, rates fluctuated between 6.60% and 7.22%, maintaining a challenging environment for buyers.

Early 2025: Signs of Relief

As of February 2025, mortgage rates have begun to decline, offering potential relief for homebuyers. The average 30-year fixed-rate mortgage has fallen to 6.87%, the lowest level since December 2024. This decrease is attributed to slowing inflation and anticipated Federal Reserve rate cuts. While home prices remain high, the reduction in rates may enhance buying power and stimulate increased buyer activity as the U.S. housing market heads into its busiest season.

The Effect of Interest Rates on Housing Supply

Because so many are using loans for their purchases, interest rates are always top of mind in real estate. When home supply is low, this pushes housing prices upward, as we've seen these past few years. When interest rates are low, more buyers qualify to buy. These two factors together created a frenzy during the pandemic years. Conversely, as interest rates rose, affordability decreased, leading to a slowdown in demand and an increase in housing inventory.

The Effect of Interest Rates on Payments

To illustrate the impact of changing interest rates on monthly mortgage payments, consider a standard conventional loan with 5% down at $254,000 over a 30-year term.

• 2019: With an average interest rate of 3.94%, the monthly principal and interest payment would be approximately $1,202.

• 2022: At an interest rate of 7.08%, the monthly payment rises to about $1,703.

• 2025: With the current rate of 6.87%, the monthly payment would be around $1,670.

  Here’s the updated math for a $600,000 house with a 5% down payment over a 30-year term which is closer to our current average for Pierce County:

  • 2019: With an average interest rate of 3.94%, the monthly principal and interest payment would be approximately $2,701.59.

  • 2022: At an interest rate of 7.08%, the monthly payment rises to about $3,822.90.

  • 2025: With the current rate of 6.87%, the monthly payment would be around $3,742.59.

  These payments do not include taxes, insurance, or HOA fees, which can vary depending on the property and location. ?

These figures demonstrate how fluctuations in interest rates can significantly affect monthly housing costs, influencing buyer decisions and overall market dynamics.

As we move further into 2025, it's essential for both buyers and sellers to stay informed about interest rate trends and their potential impact on the housing market. While the recent decline in rates offers some optimism, market conditions remain dynamic, and careful consideration is crucial when making real estate decisions.

For more detailed information on historical mortgage rates and their trends, you can refer to resources like the Federal Reserve Economic Data (FRED) and PropertyCalcs.