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Mortgage Rates Are Lower Today Than They May Ever Be Again

Ignore everything you think you know about the current state of mortgage rates. If you're waiting to buy a house until they return to their lows from two years ago, then you could be renting for the rest of your life.

In behavioral finance, this is known as anchoring. This concept "draws on the tendency to attach or 'anchor' our thoughts to a reference point -- even though it may have no logical relevance to the decision at hand," explains Albert Phung, a writer and analyst for

The examples of this are legion. A study made famous by the book Predictably Irrational examined whether college students would pay more or less for a bottle of wine after being asked to write down the last two digits of their social security numbers. As you may have guessed, those with higher numbers indicated a willingness to pay more.

While this doesn't translate precisely into the mortgage-rate realm, it nevertheless demonstrates how a largely irrelevant number can influence our day-to-day decisions. And it's this point that holds true when you look at the 3.4% rate on 30-year conforming mortgages that prevailed at the end of 2012.

In short, those rates were an aberration. They were the result of a highly unusual type of monetary policy, known as quantitative easing, used by the Federal Reserve to revitalize the economy. And, more importantly for present purposes, the central bank is now easing the economy off this stimulus.

The net result is that mortgage rates remain lower than they may ever be again. This isn't to say they won't drop by a fraction of a percent over the immediately foreseeable future, but the general trend is up, and any small and temporary dip will be just that -- small and temporary.

You can see this in the chart above. Since the high inflation of the 1970s, long-term interest rates have been on a steady descent. They bottomed out in the years after the financial crisis, and it seems likely there's only one direction for them to head going forward.

I, of course, could be totally wrong on this. But even so, there's simply no question current mortgage rates are still fantastic and highly favorable to homebuyers. Borrowing at 4.4% was unheard of until only recently, and it soon could be again.

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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