Hey, welcome back to another edition of the Inside Track. Today we’re going to talk about interest rates, Iran, oil, and inflation.
As one of Salt Lake City’s top mortgage brokers, I’m getting peppered with questions about interest rates, the war, and everything going on. So let’s break it down and talk about how it affects you. What a long, strange trip it’s been—little shoutout to the Grateful Dead.
Most of you know I’m a bit of a nerdy economist, and I follow things like the 10-year Treasury. A lot of people have heard of it, but there’s no myth or magic to it. It’s essentially money that you lend to the government, and in return they give you a 10-year IOU. It’s considered basically risk-free, and it serves as a benchmark not just for the industry, but really for the global market.
What’s been happening with it lately has been very interesting. At the beginning of the year, it was around 4.16%. We saw it dip down toward the end of February, hitting a low. Then, right after the war started, markets were trying to figure out whether this would be a short-term situation or something more prolonged. Since then, rates shot up quickly. Over about 25 days, the 10-year moved from 3.92% up to 4.5%, before settling back down around 4.3%. Again, this yield is the global benchmark for interest rates and is considered a risk-free instrument, which is why we pay close attention to it. Mortgage rates typically sit a couple percentage points above it.
Looking at mortgage rates specifically, back in late February there was excitement when rates dipped below 6% for the first time in a while. Then the war broke out. The following week was relatively flat as markets assessed the situation, but then rates took off quickly—moving week by week through the mid-6% range before starting to settle down again. Hopefully, that stabilization holds.
To put things into perspective, if you look at interest rates over the past 50 years, it’s a bit of a mind-bender. Back in 1981, during a period of very high inflation, rates reached as high as 16.64%. During COVID, by contrast, rates dropped to just below 3%. In the 1970s, rising inflation pushed rates up significantly. During the Reagan era in the 1980s, rates began to stabilize, coming down from double digits. By the 1990s, things settled into single digits, and in the 2000s, the norm was around the 6% range.
In more recent years, especially after the 2008 financial crisis, rates dropped even further into the 5% and 4% ranges. Then during COVID, we saw rates fall to around 2.625% in 2021, followed by the fastest increase ever, where rates essentially doubled in a short period.
Historically, if you go back to the 1970s, the average interest rate has been in the mid-7% range. We were close to that as recently as last year when rates hit around 7%, and since then they’ve come back down somewhat.
So what does all of this mean? The key number to watch is 5%. When rates start with a “5,” that’s when things feel really good. We’re close, but not quite there yet, still sitting in the low 6% range. It does seem likely we’ll get there eventually.
At the end of the day, the biggest factor to watch is oil. When oil prices rise, they drive inflation. When inflation rises, interest rates—and therefore mortgage rates—tend to rise as well. When oil stabilizes, you’ll likely see rates settle down too.
If you’ve made it this far, thanks so much for watching. Give me a call if you have any questions, and we’ll see you next time. Take care.
