Winter is coming for mortgage rates. Why this might be a good thing Loaner

Mortgage rates have seen wild growth in recent years. In fact, it was still possible to obtain a fixed mortgage loan at 3% over 30 years at the start of 2022.

By the end of 2023, you may have been facing a mortgage rate of 8%. And today your rate can start with 5, 6 or 7.

Volatility has reigned supreme as the Fed battles inflation and economic uncertainty makes it difficult to determine the long-term direction of rates.

But one thing I’ve noticed is that rates tend to perform better during certain times of the year.

Namely during the winter months, which in the northern hemisphere include December, January and February.

Winter is a historically good season for mortgage rates

Without getting too technical, winter lasts from December 1st until the end of February.

It’s been more or less three months, but if you want to be technical, there’s a astronomical season and a weather season.

Regardless, I’m going to keep it simple and focus on the months of December, January, and February. These are your main winter months, and also when it tends to be the coldest.

Although I don’t like being cold (because I live in Southern California), winter isn’t that bad. In fact, winter has an advantage when it comes to mortgage rates.

And maybe also buy a house.

I analyzed numbers going back to 1972 and found that mortgage rates tend to be lowest during the winter months.

Using Freddie Mac’s Primary Mortgage Market Survey (PMMS), I compiled monthly averages to determine if any months stood out.

And there you have it, FEBRUARY was the best month for mortgage rates in 50 years.

Mortgage rates were the lowest in February on average in 50 years

As you can see from my chart, which took a long time to create, the 30-year fixed rate averaged 7.62% in the month of February dating back to 1972, according to Freddie Mac.

While that’s about a percentage point higher than Freddie’s current weekly rate of 6.69%, it’s the best month on record.

The only best month was January, with an average rate of 7.64%, followed by December at 7.68%.

So what does this tell us? Well, that winter is the best season for mortgage rates! During all winter months, mortgage rates tend to be at their best, that is, lowest.

To take advantage of this trend, you may want to refinance your mortgage during these months or even purchase a home during these months.

While I’m not a big believer in market timing, there are clear benefits that go beyond the rates themselves.

There is generally less competition when buying a home since it is a quieter time of year, and fewer other customers when refinancing a mortgage.

This means you could get a lower price on a home or, in the case of refinancing, benefit from better customer service and faster turnaround times.

Additionally, mortgage lenders tend to pass on more savings during slow times. When they are less busy, they need to stimulate activity, which could explain why rates are lower.

Spring and summer are the worst seasons for mortgage rates

We now know that winter is generally the best season for mortgage rates. But what about the worst?

When the weather starts to warm up, mortgage rates tend to rise as well.

Although March seems like a decent month, straddling the end of winter and beginning of spring, it gets worse from there.

The worst months are May and June, and April is practically right there with them. This also happens when home shopping is in full swing.

What you get is an unwelcome combination of the most competition from other home buyers and the highest mortgage rates (on average).

This works against buying a home in the spring or early summer, as sellers might be encouraged to stay firm on pricing. And lenders might not be willing to offer discounts or negotiate much.

Overall, you’re looking at a potentially inflated home sale price and a higher mortgage rate.

The only real upside is that there might be a greater selection of inventory for sale, which may be a plus since the pickings have been slim for years now.

Mortgage rates are unpredictable and can vary regardless of the season

One final note here. Just because mortgage rates tend to be lowest in the winter doesn’t mean they always are.

The same goes for higher rates in spring and summer. There have been and will be years when the opposite will be true.

For example, the 30-year fixed rate started 2024 at around 6.60% and was as low as 6% as of mid-September.

But in 2023, the 30-year rate peaked at around 6% in February and peaked at almost 8% in October.

So sometimes it will “work” and sometimes it won’t. Pay attention to major trends if you’re looking to track mortgage rates.

Right now we seem to be heading lower as inflation slows and the economy looks fragile.

This means mortgage rates could continue to fall this month and next, and possibly reach these lows again in February 2025.

Just know that there will always be surprises (presidential inauguration, anyone?), and good and bad weeks along the way.