A Historical Look at Mortgage Rates

Mortgage rates have seen a bit of an uptick since election day.
Rates are slightly higher now than they were when we went to bed on November 8, but a mortgage interest rate in the low- to mid-4% range is still pretty good when you consider rates in the context of history. Let’s take a look at the rise and fall of mortgage rates through the decades.
In the 1940s, rates were on a steady downward track. They bottomed out at around 4.3% in 1945, according to unpublished data from the National Bureau of Economic Research.
Rates fell during this period because people were going to war and there was less demand for housing. Additionally, the war created uncertainty for many. Uncertainty caused people to buy safer assets, such as mortgage bonds. Since the returns on these assets were low, mortgage interest rates fell.

By the end of 1945, America had won the war. Soldiers returned and factories initiated regular production again. Rates steadily ticked up but remained under 5% until 1956.
Thanks to Freddie Mac , there is solid data available for 30-year fixed-rate mortgage rates beginning in 1971.
Rates in 1971 were in the mid-7% range, and they moved up steadily until they were at 9.19% in 1974. They briefly dipped down into the mid- to high-8% range before climbing to 11.20% in 1979. This was during a period of high inflation that hit its peak early in the next decade.
In both the 1970s and 1980s, the United States was pushed into a recession caused by an oil embargo against the U.S. and several other countries that was instituted by the Organization of the Petroleum Exporting Countries (OPEC). One of the effects of this was hyperinflation, which meant that the price of goods and services rose really fast.
To counteract hyperinflation, the Federal Reserve raised short-term interest rates , which made the money in savings accounts worth more. On the other hand, all interest rates rose, so the cost of borrowing money increased too.
Interest rates reached their highest point in modern history in 1981 when the annual average was 16.63% according to the Freddie Mac data. Rates declined from there, but they finished the decade around 10%. The 1980s were an expensive time to borrow money.
In the 1990s, inflation started to calm down a little bit. The average mortgage rate in 1990 was 10.13%, but it slowly fell, finally dipping below 7% to come in at 6.94% in 1998.
According to a paper published by the Economic Policy Institute , one big reason for the economic growth and declining inflation seen later in the decade was the arrival of the internet in the mainstream consciousness. The increased investment in research and development of new technologies spurred a ton of economic growth.
Mortgage rates steadily declined from 8.05% in 2000 to the high-5% range in 2003. However, it wasn’t all milk and honey in this decade.
The housing crash happened in part because property values declined steeply until they hit their lowest point in 2008. This left many homeowners owing more on their homes than they were worth. To provide some relief and to stimulate the economy, the Federal Reserve began to cut interest rates to make borrowing money cheaper. Short-term rates, or the rates at which financial institutions borrow money, ended up being slashed to the point where they were at or near zero. This made it extremely cheap for banks to borrow funds so they could keep mortgage rates low.
As a result of this change, mortgage rates fell almost a full percentage point, averaging 5.04% in 2009.
Riding the wave of low bank borrowing costs, mortgage rates entered the new decade around 4.69%. They continued to fall steadily and were in the mid-3% range by 2012. In 2013, rates went up to 3.98%. A big reason for this was that the bond market panicked a little bit when the Federal Reserve said they would stop buying as many bonds.
When there are fewer buyers available, the yields on mortgage bonds have to go up to attract purchasers. This also causes mortgage rates to rise. Rates went up to 4.17% in 2014. In 2015, mortgage rates fell back to 3.85% as the market calmed down. Although they were a little higher to end the year, rates last year averaged 3.65%. With global turmoil, investors have flocked to the safety of the U.S. bond market to guarantee the steadiness of their investments.
While rates may not be as low as they were before Americans went to the polls, a historical review reveals that it’s still an excellent time to lock your rate if you’re looking to get a mortgage right now. If you have any questions, we would be happy to answer them in the comments.
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