HISTORIC MORTGAGE RATES: FROM 1970 TO 2020
Remember last year when the Federal Reserve dropped their mortgage rates historically low in response to the COIVD-19 Pandemic? As of November 2020, the average 30-year fixed mortgage rate with a 20% downpayment was a mere 2.72%—an absolutely shocking number that gave many prospective homeowners a chance to enter the market before they ever thought possible. For those of us who have been in the real estate business for several decades, this number was especially shocking, as we have seen mortgages skyrocket over 18%! Today we’re taking a walk down memory lane and comparing mortgage rates since 1970 thanks to Freddie Mac beginning their lender surveys in 1971, giving us a rich database of information to digest from the 70s and beyond.
Inflation was a big problem in the mid-70s to early 80s, which caused mortgage rates to spike to keep up with the unchecked inflation. Sadly, this resulted in mortgage rate volatility for borrowers and rates going from 7.29% in 1971 to 9.19% by 1974. They briefly dipped down into the mid 8% range before climbing% in 1979.
To combat inflation caused by the recession from an oil embargo against the country, the Federal Reserve increased short-term interest rates, making money in savings accounts worth more. However, all interest rates rose, and mortgage rates hit an all-time high of 18.63%. Eventually, the fed’s strategy paid off, and inflation fell back to normal by 1982, and with it, mortgage rates went back down to single digits for the next two decades.
With inflation calming down, 1990 saw mortgage rates around 10.13%, but it slowly fell to 6.94% in 1998.
Mortgage rates steadily declined from 8.05% in 2000 to the high-5% range in 2003. In 2008, property values declined until they hit their lowest point, causing a massive housing market crash where homeowners began owing more on their homes than the property was even worth. To provide relief, the Federal Reserve cut interest rates to make borrowing money cheaper, resulting in a 5.04% mortgage rate in 2009.
Mortgage rates in the 2010s were all over the place. As we entered a new decade, rates were around 4.69% and fell to 3.5% in 2012. When the Federal Reserve announced it would stop buying as many bonds, mortgage rates went back up to 3.98% because when there are fewer buyers available, the yields on mortgage bonds have to go up to attract purchasers, causing mortgage rates to rise. In 2014, the rates were around 4.17% and went down again to 3.85% in 2015. With the 2016 presidential election underway, rates were, on average, 3.65% and rose after the election and hit their peak in 2019 at 5.34%. When January 2020 came around, rates were about 3.7% until the dawn of the Coronavirus Pandemic.