Mortgage interest rates have been a much-discussed topic this year. Rapid increases in inflation have forced the Federal Reserve to aggressively raise interest rates after decades of pegging them at record lows, causing borrowing costs to soar for many mortgage borrowers. In this article, we look at the history of mortgage rates in the United States and how certain events have influenced rate fluctuations over the decades.
History of 30-Year Fixed Mortgage Rates in the United States
Thirty-year fixed mortgage rates have gone up and down many times over the past 50+ years, and current rates aren't all that different from when Freddie Mac first started tracking rates in 1971.
1970s
Freddie Mac began studying interest rates offered by lenders in April 1971 on the most popular 30-year and 15-year fixed mortgages.
Throughout the 1970s, the U.S. Federal Reserve raised and lowered borrowing costs. Thirty-year fixed mortgage rates started out in the mid-7% range in the early 1970s and rose steadily, peaking at 12.90% by the end of 1979.
1980s
Stagflation (low growth and high inflation) characterized the late 1970s. In December 1979, the new Federal Reserve Chairman, Paul Volcker, raised interest rates to 13.78%. By June 1981, interest rates had risen to 19.10%. Volcker's intention was to crush inflation, which he did, but in the process helped precipitate the recession of 1981-1982.
The average interest rate on a 30-year mortgage was 12.85% in the early 1980s, then dropped briefly in the spring of 1980 before rising again, peaking at 18.63% in October 1981. By the end of the decade, interest rates had fallen to just under 10%.
1990s
The 1990s began with a recession, but it was milder than the recession of the decade prior. In response to the recession, the Federal Reserve reduced interest rates over the course of the decade, resulting in a gradual decline in the average 30-year fixed mortgage rate. Towards the end of the decade, the economy grew and inflation declined, due in large part to the growth of the Internet and the associated increased investment in research and development of new technologies.
The decade began with 30-year fixed mortgage rates at 9.83% and ended with 30-year fixed mortgage rates at 8.06%.
2000s
Interest rates on 30-year fixed mortgages fell from 8.15% in January 2000 to the 5% range by mid-2003. Shortly thereafter, the Great Recession began in 2008. The housing market collapsed along with the economy. Many homeowners fell behind on their mortgage payments and ended up owing more than their homes were worth.
To stimulate the economy, the Fed slashed interest rates. Short-term interest rates, the rates at which financial institutions borrow money, were slashed to near zero. This allowed banks to borrow money more cheaply, keeping mortgage rates low. Mortgage rates fell to 5.14% at the end of 2009.
2010s
Long-term mortgage rates started at 5.09% in 2010 and fell to around 3.35% by the end of 2012. In 2013, the Fed announced that it would no longer purchase bonds, which caused the bond market to fall. As a result, mortgage bond yields rose to attract buyers, which led to higher mortgage rates. By the start of 2014, rates were at 4.53%. However, rates then began to fall, dropping to 3.59% by February 2015.
After the 2016 presidential election, long-term interest rates began to rise again, fluctuating somewhat from 2018 to 2019, but ultimately hit a 10-year high of 3.74%.
2020
At the start of the decade, the average interest rate on a long-term fixed mortgage was 3.72%. Shortly thereafter, COVID-19 brought the world to a halt. As COVID-19 spread in the United States, it had a major impact on the economy. To prevent further disaster, the Fed cut the federal funds rate to 0.05%, and other short-term and long-term interest rates also fell.
By the end of 2020, the average interest rate on a 30-year fixed mortgage was 2.67%. Rates remained low through 2022, the year the Fed began raising interest rates to reduce the amount of money in the economy.
Historical mortgage interest rates (since 1970)
The chart below shows the average interest rate on a 30-year fixed mortgage by decade from the 1970s to the present. You can compare mortgage rates at the beginning and end of each decade. This data is provided by Freddie Mac.
*At the time of writing. Source: Freddie Mac.
What was the lowest mortgage interest rate ever?
The lowest interest rate on a 30-year fixed rate mortgage was 2.65% in January 2021, likely due to the impact of COVID-19.
What was the highest mortgage interest rate ever?
The highest mortgage rates on record were in the 1980s. 30-year fixed mortgage rates peaked at 18.63% in October 1981. This was likely due to high inflation following the OPEC embargo.
What are the trends for 2020 and beyond?
Mortgage interest rates have been gradually increasing since hitting record lows in early 2021. The Federal Reserve has been raising short-term interest rates to combat inflation. The average interest rate for a 30-year fixed mortgage was 6.39% during the week of May 18, 2023.
Will mortgage rates fall in 2023?
No one can predict the future. While the common view is that mortgage rates will gradually decline in 2023, things could change. The economy can change quickly. Unforeseen factors could cause inflation and interest rates to drop or rise significantly over the rest of the year. If you're considering buying a home, it's important to do your research to find the best interest rate you can qualify for.
Frequently Asked Questions (FAQ)
How do changes in mortgage rates affect home prices?
Inflation can cause home prices to rise. Rising inflation can lead the Fed to raise the federal funds rate, which can lead to higher mortgage interest rates. Rising mortgage rates can decrease demand for housing. This decrease in demand can lead to lower home prices. However, it's important to remember that housing markets vary from location to location.
What is your advice to home buyers?
If you're considering buying a home, it's useful to check the average mortgage interest rates daily, as they can fluctuate from day to day. However, you might not qualify for the average mortgage rate. The rate you qualify for will depend on personal factors, including your credit score, down payment, the location of your home, the interest rate you're looking for, the term, and the type of loan.
How do changes in mortgage rates affect refinancing?
Refinancing your mortgage means replacing your existing mortgage with a new loan. The new loan can be from the same lender or a different lender, and it can have different terms and interest rates.
If mortgage interest rates have dropped significantly since you first took out your mortgage, you may be able to qualify for a lower interest rate when you refinance. Of course, you'll need to qualify and have a good credit score to qualify for the best possible rate. Refinancing also comes with closing costs and can reset your loan repayment term, so be sure to compare long-term and short-term costs before refinancing your mortgage.
How often should you compare mortgage rates?
Mortgage interest rates change every day, sometimes multiple times a day. If you're thinking of applying for a new mortgage or refinancing your existing mortgage, it's useful to check mortgage rates every day so you know if you've found a good rate.