Mortgage rates have been historic in their own right during the past few years. The average 30-year fixed rate reached an all-time record low of 2.65% in January 2021 before surging to 7.79% in October 2023, according to Freddie Mac.
But when someone points out that mortgage rates are painfully high right now, a well-seasoned homeowner is quick to chime in, "When I bought my first house in the '80s, the interest rate was 13%!" In fact, mortgage rates have gone as high as 18.63% in October 1981.
By historical standards, today's mortgage rates are pretty on par with what homeowners have paid in the past. Since Freddie Mac began tracking rates in April 1971, the median 30-year mortgage rate is 7.41%. However, it's still true that rates are high by modern standards, since the typical rate observed over the past decade is under 4%.
The table above shows how mortgage rates have fluctuated over the past five decades. It's evident that while today's mortgage rates are high compared with just a few years ago, they're actually quite typical from a historical standpoint.
Of course, you can't talk about the history of mortgage rates without comparing other metrics like home prices and incomes. The median price for new single-family homes sold in the U.S. during 1981 – when mortgage rates reached record highs – was $68,900, according to Census Bureau data. That would be equivalent to more than $200,000 in today's dollars, using the consumer price index inflation calculator. Meanwhile, the actual median new home sales price is $418,800 as of September 2023.
The monthly mortgage principal and interest payment on a home at 1981 prices with an 18% mortgage rate would be $831, assuming a 20% down payment and using our mortgage calculator. On the other hand, a home at today's prices and a 7% rate would come with a monthly P&I payment of $2,229. But don't forget to account for inflation: That $831 housing payment in 1981 would cost $2,737 today.
Lastly, consider earnings versus housing expenses. The median household income in 1981 was $22,390 per the Census Bureau, and that salary would be equivalent to about $74,000 today. The observed household income in the U.S. was $74,580 in 2022, according to the most recent census.
All told, housing affordability is actually fairly similar to what it was in the '80s, but remember the context: Housing affordability was at record-low levels back then. Today, housing affordability is at its lowest point in 37 years, according to Black Knight, a mortgage analytics provider. So next time you hear about how high mortgage rates were in 1981, keep in mind that homebuying conditions are just as challenging now – even though rates are so much lower.
Mortgage rates aren't the reason why people move, but they can influence whether a first-time homebuyer can afford a home or whether homeowners decide to sell, refinance or stay put. Lower mortgage interest rates translate to lower monthly housing payments, which can encourage homebuying. And the opposite is true: When rates are high, homebuying becomes more expensive, and some shoppers may simply be priced out. Here's how that's played out in previous years.
Mortgage Rates and Home Sales
Historically, mortgage rates haven't had an outsized impact on the housing market, at least not as much as other factors like seasonality or recessions in the U.S. economy – until recently.
Let's look at the housing market in the context of the Great Recession until today. In the years following the 2008 housing bubble burst, the real estate market was injected with inventory from subprime foreclosures, and home prices crashed. From the peak in late 2006 to the trough in early 2012, home prices declined by 27%, according to the Case-Shiller Home Price Index. Suffice to say, Americans weren't too busy thinking about their mortgage rate, but about their property values.
Things stayed relatively uneventful in the housing market during most of the decade following the Great Recession. Mortgage rates hovered steadily in the 3.5% to 5.5% range in the 2010s. By 2017, home values recovered from the damage sustained during the 2008 crash, and home price appreciation carried on at a typical rate of a few percentage points per year. That is, until the COVID-19 pandemic ushered in an era of record-low mortgage rates.
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