Mortgage rates have been a popular topic of discussion this year. Rampant inflation forced the Federal Reserve (Fed), to aggressively hike interest rates, after decades of pegging them at record lows, leading borrowing costs on many mortgages to rocket. In this article, we’re going to look at the history of mortgage rates in the U.S. and how certain events contributed to fluctuations over the decades.
History of the 30-year fixed mortgage rate in the U.S.
The 30-year fixed mortgage rate has gone through multiple ups and downs in the past 50-plus years. Today’s rates are not far from where rates were when Freddie Mac first began tracking them in 1971.
1970s
Freddie Mac began surveying the rates lenders offer on their most popular 30-year and 15-year fixed mortgages in April 1971.
Throughout the 1970s, the U.S. Fed raised and lowered borrowing costs. Thirty-year fixed mortgage rates started the decade in the mid-7% range and grew steadily, peaking at the end of 1979 at 12.90%.
1980s
Stagflation—the term for low growth and elevated inflation—characterized the late 1970s. In December 1979, Paul Volcker, the new chairman of the Fed, raised interest rates to 13.78%. Then byJune 1981, the rate had climbed to 19.10%. Volcker’s intention was to kill inflation, which he did. However, in the process, he helped instigate the recession of 1981 through 1982.
Average 30-year mortgage rates started the decade at 12.85%. Then after a brief drop in the spring of 1980, started marching higher until they peaked at 18.63% in October 1981. By the end of the decade, rates had dropped back down to just under 10%.
1990s
The 1990s started with a recession, but one that was mild compared to the recession 10 years earlier. In response to the recession, the Fed began a decade of lowering interest rates, and this showed up in a gradual decrease in average 30-year fixed mortgage rates. Toward the end of the decade, the economy was growing and inflation was decreasing, due in part to the growth of the internet and the increased investment in research and development of new technologies that went along with it.
The decade started with 30-year fixed mortgage rates at 9.83% and ended with 30-year fixed mortgage rates at 8.06%.
2000s
Thirty-year fixed mortgage rates dropped from 8.15% in January 2000 to in the 5% range in mid-2003. Not long after, in 2008, the Great Recession began. The housing market crashed along with the economy. Many homeowners found themselves underwater on their mortgage, owing more on their home than it was worth.
To help stimulate the economy, the Fed lowered interest rates. Short-term rates, which are the rates at which financial institutions borrow money, were cut to nearly zero. This allowed banks to borrow money cheaply and keep mortgage rates low. Mortgage rates fell to 5.14% at the end of 2009.
2010s
Long-term mortgage rates began 2010 at 5.09%, then fell to around 3.35% by the end of 2012. In 2013, the Fed announced that it would no longer be buying as many bonds. This caused the bond market to drop. As a result, the yields on mortgage bonds increased to attract buyers, causing mortgage rates to rise. By the start of 2014, rates were at 4.53%. However, they then began to decline, falling to 3.59% by February 2015.
After the 2016 presidential election, long-term rates began to rise again. They fluctuated a bit between 2018 and 2019, but ultimately ended the decade at 3.74%.
2020
At the beginning of the decade, the average long-term fixed mortgage rate stood at 3.72%. Shortly after, COVID-19 brought the world to a standstill. As COVID-19 spread in the U.S., it had a huge impact on the economy. To prevent further disaster, the Fed cut the federal funds rate to 0.05%, causing other short-term and long-term rates to drop as well.
By the end of 2020, the average 30-year fixed mortgage rate was 2.67%. Rates remained low until 2022, which is when the Fed began raising its rates to reduce the amount of money in the economy.
Historical mortgage rates (1970+)
The chart below shows the average rates on 30-year fixed mortgages by decade, starting in the 1970s up until the present day. You can compare how the mortgage rates were at the start and end of each decade. This data comes from Freddie Mac.
| Mortgage rates | Start of the decade | End of the decade |
|---|---|---|
1970s | 7.31% | 7.48% |
1980s | 7.48% | 9.78% |
1990s | 10.13% | 8.06% |
2000s | 8.06% | 5.14% |
2010s | 5.14% | 3.72% |
2020s | 3.72% | 6.40%* |
*At the time of writing. Source: Freddi Mac.
What were the lowest mortgage rates in history?
The lowest recorded rate for a 30-year fixed-rate mortgage was 2.65% in January 2021,This was likely due to the effects of COVID-19.
What were the highest mortgage rates in history?
The highest mortgage rates in history were in the 1980s. Thirty-year fixed mortgage rates hit their peak at 18.63% in October 1981. This was likely due to high inflation following the OPEC embargo.
What is the trend since 2020?
Since mortgage rates hit their historic low at the beginning of 2021, they have slowly increased. The Fed has been raising the short-term interest rate to help combat inflation. The average 30-year fixed mortgage rate in the week of May 18, 2023, was 6.39%.
Will mortgage rates go down in 2023?
No one can predict the future. The consensus is that mortgage rates will gradually decline in 2023, although that could change. The economy can shift very quickly. Unforeseen factors could cause inflation and interest rates to drastically decrease or increase through the rest of the year. If you are thinking about buying a house, it’s important to do your research to find the best rates for which you can qualify.
Frequently asked questions (FAQs)
How do the changes in mortgage rates affect home prices?
Inflation can cause home prices to rise. If inflation rises, the Fed may increase the federal funds rate, which can cause mortgage rates to increase. When mortgage rates increase, the demand for homes is likely to decrease. This decrease in demand can lead to lower home prices. However, it’s important to remember that housing markets vary by location.
What are some recommendations for homebuyers?
If you’re thinking about buying a house, it can be helpful to check the average mortgage rates daily, since there can be fluctuations from one day to the next. However, you may not qualify for the average mortgage interest rate. The interest rate that you can qualify for will depend on personal factors like your credit score, your down payment, the home’s location, and the type of rate, term, and loan you’re seeking.
How do changes in mortgage rates affect refinancing?
When you refinance a mortgage, you’re replacing your existing mortgage with a new loan. The new loan could be from the same lender or from a different lender. It could also have different terms or different rates.
If mortgage rates have dropped significantly since you originally took out your mortgage, you may be eligible for a lower interest rate on your refinance. Of course, you will still need to qualify, and your credit score should be high if you want to be eligible for the best rates possible. Refinancing also has closing costs and may reset the term on repaying your loan, so make sure to compare long-term and short-term costs before refinancing your mortgage.
How often should you compare mortgage rates?
Mortgage rates change daily–even multiple times a day. If you’re thinking about applying for a new mortgage or refinancing an existing mortgage, it can be useful to check mortgage rates every day. This can help you determine when you have found a good rate.
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