What year was the highest housing interest rate?
Interest rates reached their highest point in modern history in October 1981 when they peaked at 18.63%, according to the
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.
Key Takeaways: The highest the federal funds rate has ever soared was to 20% in December 1980. The lowest it has dropped is effectively 0% in 2008 and 2020.
The 1970s and 1980s
As we headed into the 80s, it's important to note that the country was in the middle of a recession, largely caused by the oil crises of 1973 and 1979. The second oil shock caused skyrocketing inflation. The cost of goods and services rose, so fittingly, mortgage rates did too.
30 Year Mortgage Rate in the United States averaged 7.73 percent from 1971 until 2024, reaching an all time high of 18.63 percent in October of 1981 and a record low of 2.65 percent in January of 2021.
But while the Fed raised its benchmark rate fast in 2022–2023, it's expected to bring rates down at a much more gradual pace in 2024 and beyond.
Key takeaways. Looking at the past four decades, the average rate on a 30-year mortgage peaked in 1981, rising to roughly 16 percent. The average 30-year rate bottomed in 2021 at just under 3 percent. Today, the cost of a typical 30-year mortgage is similar to rates seen in the later 1990s, in the 7 percent range.
2021: The lowest 30-year mortgage rates ever
Rates plummeted in 2020 and 2021 in response to the Coronavirus pandemic. By July 2020, the 30-year fixed rate fell below 3% for the first time. And it kept falling to a new record low of just 2.65% in January 2021.
Inflation and Fed hikes have pushed mortgage rates up to a 20-year high. 30-year mortgage rates are currently expected to fall to somewhere between 6.1% and 6.4% in 2024. Instead of waiting for rates to drop, homebuyers should consider buying now and refinancing later to avoid increased competition next year.
Here's where three experts predict mortgage rates are heading: Around 6% or below by Q1 2025: "Rates hit 8% towards the end of last year, and right now we are seeing rates closer to 6.875%," says Haymore. "By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower."
What is considered a good mortgage rate?
In today's market, a good mortgage interest rate can fall in the high-6% range, depending on several factors, such as the type of mortgage, loan term, and individual financial circ*mstances. To understand what a favorable mortgage rate looks like for you, get quotes from a few different lenders and compare them.
In February 1980, the average 30-year mortgage rate was 12.85%. By October 1981, the average rate had risen to a whopping 18.63%. Mortgage rates gradually cooled as the decade wore on. By March 1985, the average 30-year mortgage rate was roughly 13%, and at the end of the decade, rates dipped below the 10% mark.
In fact, the 30-year mortgage wasn't officially authorized by Congress until 1948 (for new construction) and 1954 (for existing homes). Given these facts, it's not surprising that for much of the 1930s–1950s, the 15-year mortgage was the go-to option for many homebuyers.
In summary, it is unlikely that mortgage rates in the US will ever reach 3% again, at least not in the foreseeable future. This is due to a combination of factors, including: Higher Inflation: Inflation is currently at a 40-year high in the US, and the Federal Reserve is raising interest rates to combat it.
What is the current Fed interest rate? Right now, the Fed interest rate is 5.25% to 5.50%.
| Product | Interest Rate | APR |
|---|---|---|
| 30-Year Fixed Rate | 7.19% | 7.24% |
| 20-Year Fixed Rate | 7.04% | 7.09% |
| 15-Year Fixed Rate | 6.66% | 6.74% |
| 10-Year Fixed Rate | 6.55% | 6.62% |
Legally speaking, there's no limit to how many times you can refinance your mortgage, so you can refinance as often as it makes financial sense for you. Depending on your lender and the type of loan, though, you might encounter a waiting period — also called a seasoning requirement.
While McBride had expected mortgage rates to fall to 5.75 percent by late 2024, the new economic reality means they're likely to hover in the range of 6.25 percent to 6.4 percent by the end of the year, he says.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
When inflation is running high, the Fed raises those short-term rates to slow the economy and reduce pressure on prices. But higher interest rates make it more expensive for banks to borrow, so they raise their rates on consumer loans, including mortgages, to compensate.
Why are interest rates so high?
When the Prime Rate is high, borrowing money is more expensive. This causes increased interest rates and lower spending. This also effectively lowers inflation. This is why the Federal Reserve raised interest rates in 2022, to fight rising inflation.
The current Bank of America, N.A. prime rate is 8.50% (rate effective as of July 27, 2023).
When purchasing a home, you have the choice of an adjustable-rate mortgage (ARM) or a fixed-rate mortgage. While interest rates usually fall early in a recession, credit requirements are often stricter, making it challenging for some borrowers to qualify for the best interest rates and loans.
For people looking to buy a home, a recession can bring some advantages. When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.
In short, yes, but it's all relative. “In today's market, 6% is a great rate compared to the historic average of a little over 7%,” Rueth said. “However, 6% no longer looks good because homeowners were spoiled by 2.75% mortgage rates a few years ago.”
