A Half-Century Journey: Exploring the History of Mortgage Rates in the United States

 If you are lucky, you have a locked-in home mortgage and have no immediate plans to move. If you are not one of the lucky ones, you probably looked at mortgage rates 6-9 months ago, got a wave of nausea, immediately slammed your notebook computer closed, and said something to the effect of: we should wait until autumn – I am sure that they will come back down.” Well, here we are, Labor Day, summer fun, and cookouts are behind us, but still fresh in our minds. Though the cacophony of air conditioning units still sets a sonic backdrop for your daily grind, you have, by now, taken a photo of your children or grandchildren in front of your favorite wall as they donned their crisp new school outfits. If they are older, you have deposited them at a dorm at university and left them stocked with enough snacks and water to last them through the end of ‘20s (though the provisions are not likely to last until the end of the week). Things have quieted down. You make yourself a cup of tea, stare at your computer and wonder if it is safe to check on those mortgage rates. Surely, they have come down since last year. Alas, they are higher. 

Let’s get some perspective on mortgage rates and explore their history in the United States over the past 50 years. Understanding the evolution of mortgage rates is not only a fascinating trip down memory lane but also crucial for anyone looking to make informed decisions about their housing investments. So, let’s step into the time machine and trace the path of mortgage rates from the 1970s to the present day. 

The 1970s: The Era of Volatility… and plaid 

The 1970s marked the beginning of our journey, and it was a turbulent start. Mortgage rates in the early ’70s were relatively low, hovering around 7%, but this stability was short-lived. As inflation rates soared, mortgage rates followed suit, reaching a peak of nearly 13% by the end of the decade. This period of high interest rates was a result of the Federal Reserve’s efforts to combat rampant inflation, which peaked at nearly 12% by 1975, declined but then came back with a vengeance, ending the decade at its nearly 14% high. You can see by the following charts how mortgage rates followed the Fed’s hiking activity. 

The 1980s: A Rollercoaster of Rates… and big hair, really big hair 

The 1980s continued to be a tumultuous time for mortgage rates. Fixed mortgage rates quickly touched 19% in 1981 as inflation plateaued to 15%. Although rates did eventually begin to decline from their highs, they remained relatively elevated throughout the decade. Homebuyers had to contend with rates in the double digits, typically ranging from 10% to 14%. The ’80s also witnessed a shift towards adjustable-rate mortgages (ARMs), providing some relief for buyers looking to secure a lower initial rate. 

The 1990s: A Slow Descent… and the Internet was borne 

The 1990s ushered in a period of declining mortgage rates. As inflation subsided, getting as low as 1.4% in 1998, the Federal Reserve adopted a more accommodating monetary policy. Rates dropped to single-digit territory, making homeownership more affordable and stimulating the real estate market. By the end of the decade, mortgage rates were briefly below 7%, a significant improvement from the previous two decades. 

The 2000s: The Boom and Bust… social media comes out of its shell 

The early 2000s appeared to be a golden age for homebuyers. Mortgage rates remained relatively low, hovering around 6%. However, this era was marked by the subprime mortgage crisis, which erupted in 2008. Though it was not the only cause, the subprime mortgage crisis was a primary factor in The Global Financial Crisis and The Great Recession. The financial turmoil prompted the Federal Reserve to slash interest rates to historic lows in an attempt to stimulate economic recovery. Mortgage rates got as low as 4.75% at the end of the decade. Inflation was not even a factor in the aughties where the Consumer Price Index / CPI briefly turned negative (deflation) in 2009. 

The 2010s: The Era of Ultra-Low Rates … and your ever-present smartphone 

The aftermath of the financial crisis led to a prolonged period of ultra-low mortgage rates. The Federal Reserve kept its key interest rate near zero, resulting in mortgage rates falling to historic lows. Homebuyers enjoyed rates below 4%, a stark contrast to previous decades. Low rates, coupled with post-recession recovery, fueled a housing market rebound. Inflation, as in the prior decade, was not even a factor in the wake of The Great Recession, as it hovered around the Fed’s, now-infamous 2% target. 

The 2020s: Navigating Uncertainty… and we are not even halfway through 😯 

As we entered the 2020s, mortgage rates remained extremely low! The economic impact of the COVID-19 pandemic and the Fed’s unprecedented economic stimulus pushed rates to historical lows. While rates hovered around 3% through the start of 2022, the climate has changed drastically since. In this decade inflation became a factor once again after having remained benign since the 1980s; it peaked at around 9% in 2022. The Federal Reserve’s policy reversal saw it shift from accommodative to restrictive, during which the central bank raised its key lending rate from near 0% to 5.5% within 18 months. The impact on mortgage rates was stark, ramping them up from around 3% to just about 7.25%! While that is, indeed, high, mortgages are significantly lower than they were when we began our half-century journey way back in the 1970s. 

Conclusion 

Our journey through the history of mortgage rates in the United States over the past 50 years reveals a fascinating narrative of volatility, crisis, and recovery. From the double-digit rates of the ’70s and ’80s to the lows of the 2010s and post COVID, early 2020s, mortgage rates have played a pivotal role in shaping the real estate landscape. 

For prospective homebuyers, understanding this history is vital for making informed decisions about their investments. As we look ahead to the rest of the 2020s, it is clear that mortgage rates will continue to be influenced by economic factors and Federal Reserve policies, making them a critical aspect of the housing market’s future. And those Fed policies will be influenced by inflation, just as they were in the 1970s and ‘80s. Many economists don’t expect mortgage rates to return to their 2021 lows anytime soon, nor are they expecting mortgage rates to reach 1970s/1980s highs. Thankfully, nobody is expecting plaid to come back in style anytime soon. Are you sure you are ready to open your notebook computer? 

Conclusion 

Our journey through the history of mortgage rates in the United States over the past 50 years reveals a fascinating narrative of volatility, crisis, and recovery. From the double-digit rates of the ’70s and ’80s to the lows of the 2010s and post COVID, early 2020s, mortgage rates have played a pivotal role in shaping the real estate landscape. 

For prospective homebuyers, understanding this history is vital for making informed decisions about their investments. As we look ahead to the rest of the 2020s, it is clear that mortgage rates will continue to be influenced by economic factors and Federal Reserve policies, making them a critical aspect of the housing market’s future. And those Fed policies will be influenced by inflation, just as they were in the 1970s and ‘80s. Many economists don’t expect mortgage rates to return to their 2021 lows anytime soon, nor are they expecting mortgage rates to reach 1970s/1980s highs. Thankfully, nobody is expecting plaid to come back in style anytime soon. Are you sure you are ready to open your notebook computer?