atHome Colorado Features
After my grandmother’s recent passing, my family unearthed a long-lost treasure: an uncashed treasury note from the 1980s, issued in my mother’s name. The note boasted an astonishing 12% interest rate – an eye-catching figure that feels like a relic from a different era. The thrill of discovery was palpable. It was as if we had stumbled upon buried gold.
When we visited the bank to inquire about cashing it in, the banker shared a fascinating perspective. While we marveled at the high rate, he pointed out that mortgage rates during that same time often soared above 15 to 18%. His words were a reminder of the ever-changing nature of economic conditions.
Today’s world affairs and global economic turbulence often feel unprecedented, but the roller coaster of world events and their impacts to the global financial system have spanned the course of history. For mortgages these days, rates seem to rock up and down like a boat on a tumultuous sea. Meanwhile, with rates in the 6% range, many buyers yearn for the 2% rates of the pandemic era, frustrated by current costs and feeling a sense of having missed out. Yet, looking through a historical lens, one might argue that the past wasn’t so rosy, and today’s homebuyers are more fortunate than they realize.
In the early 20th century, the modern mortgage market began to take shape. Rates initially hovered around 6% during the 1920s. However, the Great Depression (1929-1933) immediately froze credit and shattered homeownership, plummeting homeownership to a mere 44%. It was the lowest rate in a century. Today, the homeownership rate stands at approximately 65%, despite many of the present-day affordability challenges.
As the shadows of that era faded, the Federal Housing Administration (FHA) introduced government-backed, long-term amortizing loans, paving the way for the iconic 30-year fixed mortgage beginning in 1948. This innovation created a foundation of stability for the housing market, a luxury not universally enjoyed. Many countries to this day still lack such long-term financing options, leaving homeowners subject to shorter terms or variable rates.
The 1970s and 1980s presented new challenges as inflation surged, pushing mortgage rates from around 7.31% in 1971 to a staggering 18.45% by 1981. Rates surged due to the turbulent confluence of oil crises, high inflation (14.8%) and loose monetary policy. Fed Chair Paul Volcker, renowned for his decisive actions, sent shockwaves through the economy as he hiked rates to nearly 20% to curb inflation, but not without pushing the country into recession.
The 1990s ushered in recovery, and rates began a steady decline. Yet the 2000s brought new challenges, culminating in a colossal housing bubble fueled by subprime lending practices that ultimately led to the 2008 Great Recession. Four million homes went into foreclosure and the national home price fell by over 20% from 2007 to 2011.
From the wreckage of that crisis, modest rates persisted through the 2010s, with interest rates reaching below 5% for the first time, influenced by global instability and a flight to the safety of U.S. Treasuries. In 2020, the onset of the COVID-19 pandemic shocked the economy and unemployed hit 14.8%. In response, the Fed dropped the federal funds rate to essentially 0% and mortgage rates feel to historic lows (~2%s). Low rates and easing fears fueled a frenzied housing market. The market was plagued by biddings wars and waived inspections while housing prices soared by over 17% in a single year from 2021 to 2022.
However, pent-up demand ignited inflation peaking at 9.1%, and the Federal Reserve responded with 11 historically swift rate hikes. By October 2023, 30-year fixed mortgage rates reached 7.79%, up from the 2% range only several years earlier. Over the last several years, mortgages rates have modestly improved with signs of cooling inflation, however that has been balanced with on-going geopolitical uncertainty and conflict.
While high rates and home prices may seem daunting, today’s homeownership rate of 65% appears healthier compared with numerous past eras. Reflecting on the complexities of today’s mortgage landscape, it’s clear that while today’s interest rates may evoke nostalgia for past lows, today’s homeownership comes with valuable stability and protections for homeowners. Today’s homeowners enjoy the benefits of the mortgage evolution – from the security of the 30-year fixed-rate mortgage to regulations against subprime lending, like the Dodd-Frank Act. Meanwhile, despite undeniable affordability challenges, perhaps mortgage rates are actually at a “Goldilocks” level: rates that are not too low to signal crisis, yet not so high to indicate dangerous inflation. In this delicate balance, homebuyers today may find themselves in more fortunate position than their predecessors after all.
Bianca Griffith is a Boulder native, and real estate investor and advisor. As a licensed Realtor® with RE/MAX of Boulder, she is passionate about how Coloradans can use real estate to achieve their lifestyle and financial goals. She works with a wide range of clients from first-time homebuyers, to multi-family investors doing complex 1031 exchanges. With a degree in Urban Planning and background in business and municipal infrastructure, Bianca leverages her expertise and creativity to guide clients through complex real estate transactions. To contact Bianca, call 720.901.5611 or email bianca@spark-colorado.com.
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