Mortgage rates are often a good indicator of the country’s economy. These rate adjustments can be minor, while some are dramatic, especially during an economic recession. The rates tend to increase when the economic outlook is good, the unemployment rate is low, and inflation is accelerating.
On the other hand, mortgage rates fall when there’s an economic slowdown, a high unemployment rate, and inflation is low. Aside from inflation, trends over the years have shown that several factors often trigger mortgage rate adjustments:
- Gross Domestic Product (GDP).
- U.S. monetary policy.
- Housing market conditions.
- Bond market.
Predicting where the rates will end up isn’t easy, but there are signs you can watch out for to help you understand how interest rates are likely to move. Historical trends can provide a perspective on the current mortgage rates.
Mortgage Rate Trends from the ’70s to the Present
Data from the Federal Home Loan Mortgage Corporation (commonly known as Freddie Mac) shows that the 30-year mortgage rate is lower today than in 1971 and has been going down since it peaked in 1982. There have been notable highs and lows, but the overall trend has decreased since Freddie Mac started keeping records in 1971.
Below are mortgage trends from the ’70s to the present, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS).
The 30-year mortgage rates in 1971 started at a high of 7.3%. By the decade’s end, mortgage rates stood at 12.9% during increasing inflation.
Inflation rates increased sharply in the ’70s and continued into the next decade. Lenders had no choice but to raise mortgage rates. The unchecked inflation during this era resulted in volatile mortgage rates for borrowers.
Still reeling from the impact of the global economic recession and the Vietnam War, inflation rates spiked to 10.11% in 1978. By the following year, the inflation rate had reached 13.3%. Meanwhile, the average mortgage rate in 1979 had risen to 12.9%.
The ’80s was a particularly expensive decade for mortgage borrowers. Mortgage rates by the end of 1981 were averaging more than 18%. In addition, the monetary policy implemented at the time caused the country to slip into an economic recession. The recession lasted from 1980 until 1983.
Inflation in 1981 was at 9.5%. To combat this, the Federal Reserve hiked the federal fund rate. The Fed’s monetary policy helped push inflation down to 3.2% by the end of 1982. However, mortgage rates during the rest of the ’80s continued to be in double digits.
The peak of mortgage rates was 18.4% in October 1981. It decreased to 9% in 1986; by the decade’s end, the rate was 9.78%.
Mortgage rates during this decade finally remained firmly in the single digits. At the start of the ’90s, mortgage rates were around 9.83%. Inflation was controlled, helping the rates continue on their downward trajectory. The late ’90s also saw the rise of tech companies, spurring the so-called dot-com bubble.
Stocks from these companies became hot commodities, causing a rush for tech stocks. The rush to buy stocks caused tech stocks to plummet. This price dropped eventually and caused mortgage rates to decline. When 1998 rolled in, the mortgage rate stood at 6.91%.
Homeowners who bought a home with a mortgage rate of around 18% in the previous decade saw rates decline by 50%. At the end of the 1990s, the 30-year fixed mortgage rate averaged 8.06%.
The start of the 2000s saw the 30-year mortgage rate averaging around 8%. The Federal Reserve Board reduced interest rates to record-level lows to stimulate the spiraling U.S. economy, with rates going down from 6% in 2001 to 1% in 2003. The economy surged, and the demand for houses increased. Lenders saw an opportunity to meet this demand.
In the mid-2000s, lenders began offering home loans to people with low credit scores. These high-risk loans, called subprime loans, looked favorable for buyers. However, subprime loans proved unaffordable, causing many borrowers to default.
This default contributed to one of the worst economic recessions since the Great Depression. As a result, the Federal Reserve began buying mortgage bonds to keep interest rates down and help the economy recover. By 2008, the interest rates were down to almost zero.
Amid all these changes by the Federal Reserve, mortgage rates largely remained at 5% to 6% for most of the 2000s. The decade ended with mortgage rates at around 4.81% in 2009.
The housing crisis of the previous decade resulted in about 6 million people losing their homes to foreclosures. Mortgage rates remained low, however. In 2012, the rates were at 3.35%. After that, the rates gradually increased but stayed between 3.45% and 4.87% for the rest of the decade.
Demand for houses declined precipitously, a significant factor in keeping the rates down. Mortgage rates were 3.35% in 2013, the lowest for the decade. The mortgage rates declined as the 2010s ended—4.54% in 2018 to 3.94% in 2019.
The 30-year mortgage rate was at a historic low of 2.68%. The rates mostly stayed between 2.70% and 3.10%. However, inflation rates increased due to the various problems created by the pandemic.
In response, the Federal Reserve slashed interest rates to almost 0% to prop up the tottering economy. This move allowed lenders to offer loans at around 2% in 2021. In addition, the low mortgage rates allowed borrowers to refinance or purchase homes.
In 2022, mortgage rates started at 3.54%. After that, the rates rose steadily, reaching 5.3% in May 2022 and 6.13% by January 2023.
Historical mortgage rates reflect the state of the economy. Therefore, studying past mortgage rates helps you understand how they are affected by various market forces and global events. Understanding these factors can give you an idea of where mortgage rates are headed.
Overall, 30-year fixed mortgage rates are lower today than in 1971.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients to lower their monthly mortgage payments.