Two days ago, 30 year mortgage rates posted by Freddie Mac dropped to 6.67%, from a peak on October 26th at 7.79%. That is a big drop in a short time. The recent drop in rates was the result of lower inflation data in addition to a dramatic fall in the demand for new mortgages due to skyrocketing mortgage rates which bottomed January 7, 2021, at 2.65%. Rates increased since 2021 due to two main factors: OPEC reduced supply which caused oil prices to increase, and COVID caused supply chain disruptions which caused a shortage in goods which led to higher prices. This was a rapid mortgage rate increase which disrupted businesses who did not have enough time to adapt. Those businesses that were not flexible and loaded with debt were forced to close or merge. Such is the way of the normal business world-adapt or die.
Mortgage rates have been in a downtrend the last 40 years, peaking at 18.44% on October 30, 1981, until the bottom in 2021. The chart above shows how rapid the 2021 increase in mortgage rates were, and it was the 2nd largest rate increase in 50 years. The cause for the largest mortgage rate increase in the 1970's was the same cause for the rise in mortgage rates in 2021: OPEC reduced supply which caused oil prices to increase. Inflation is a measurement of many factors, but oil prices have a large weighting in the calculation of inflation.
What we have experienced with mortgage rates the last two years is highly unusual and should not be taken lightly. Those businesses that lived through it should give themselves credit and build into their future business model the same strategy that pulled them through this crisis.
For more information on why businesses don't make it, read our article Goodbye Bed Bath & Beyond, But You Have To Go.
