Mortgages cost more when interest rates are higher, but are today’s mortgage rates the highest we’ve ever seen? You may be surprised by the answer.
We’re constantly reminded that the country is riddled with inflation, stagnation, and a looming recession. We’re told that mortgage rates are at historic highs, but is that true? We’re going to look at the factors that contribute to these higher rates and the rates through the decades. We’ll let you decide.
Factors that contributes to fluctuating mortgage rates
There are many different factors that contribute to rising mortgage rates, but the three prime factors are the Fed, rising inflation, and the looming recession.
The nation’s monetary policy is governed by the Fed. This federal organization sets long-term interest rates while also aiming to keep prices and employment stable. They directly affect the lending rates of the banks when they establish the interest rate. In order to stop runaway inflation, prices must remain stable, yet as a result, customers pay more for basic necessities.
When prices rise and the purchasing power of the US dollar declines, inflation results. Groceries could have cost you $100 last week, whereas they may cost you $110 today. This isn’t just about food prices — every sector is dealing with inflation, the housing market included.
Recessions are defined by the NBER as “a significant decline in economic activity that lasts for more than a few months.” When unemployment increases during recessions, mortgage demand decreases. However, if you can find a home when mortgage interest rates decline, you’ll come out ahead, especially when there may be an influx of foreclosures due to the recession.
Historical Trends of US Mortgage Rates
Did your grandparents or parents get a better deal on the house? Over the years, mortgage rates have changed significantly. Over the length of the loan, the difference of what you’d pay in the 70s could be tens of thousands (if not hundreds of thousands) more than if you bought in the 50s.
Mortgage Rates in the 1970s: 7.38% to 11.2%
Mortgage interest rates were about 7.38% at the start of the decade, but by the decade’s conclusion, they had increased to 11.20%! The 1973 oil embargo, resulted in rapid inflation, unemployment, and wage stagnation. The result of this was lenders were much more cautious about lending.
Mortgage Rates in the 1980s: 13.74% to 10.32%
To combat the late 1970s inflation brought on by the Iran crisis, the Fed instituted an active fiscal strategy in the early 1980s, which resulted in such high mortgage interest rates.
Mortgage Rates in the 1990s: 10.13% to 7.44%
Buyers in the 1990s could finally unwind since the nation was at peace following the Vietnam War, Iran Crisis, and Gulf War. Inflation decreased from 5% to 2% over a ten-year period.
Mortgage Rates in the 2000s: 8.05% to 5.04%
Mortgage rates began to climb in the early 2000s but later declined to the lowest levels ever seen by Freddie Mac at the time. When the housing bubble burst in 2008, the Fed was forced to cut interest rates to zero.
Mortgage Rates in the 2010s: 4.69% to 3.94%
In the 2010s, housing demand barely changed. In 2010, 69% of people in the US were homeowners, but by 2016, that number had fallen to 62.9%. Because there was no demand, lenders lowered mortgage rates in an effort to attract purchasers.
Mortgage Rates from 2020 to Today: 3.11% to 7.08%
Although today’s mortgage rates for young buyers are roughly the same as they were in the 1990s, given how severe inflation is right now, it’s still a tough pill to swallow. Don’t feel like you have to put things on hold, though, if you’re looking for a Realtor® to start the purchasing or selling process. Will interest rates keep rising? Because things might change quickly, it’s difficult to predict, but an experienced agent will be able to give you the best guidance.