History of 30-Year Fixed Rates

Significance

The 30-year mortgage rate is the rate that most buyers pay to purchase a new home and it influences how people perceive current economic conditions. High mortgage rates make house payments higher and homes less affordable. Lower rates allow buyers to buy more expensive homes. The relative ease of mortgage refinancing allows homeowners with high rate mortgages to refinance when rates drop. Homeowners with low rate mortgages can benefit from the low rates for many years after rates start to increase.

The fixed mortgage rate was at about 7.5 percent in 1970. It stayed at that level until the mid 1970s, when rates started to increase significantly. The 30-mortgage rate peaked at over 18 percent in late 1981. From early 1982, the trend in mortgages was a long, steady decline with short periods of rising rates. By 1990 rates were under 10 percent, and by 2000 the average mortgage rate was at 8 percent. In 2010, after the real estate crash, the 30-year rate was setting records for falling below 4.8 percent.

Based on the monthly mortgage data from Freddie Mac, in the 40 years from 1970 until 2010, the 30-year mortgage rate was above 10 percent for almost 11 years. The rate was between 8 and 10 percent for an additional 11 years. That gives 22 years of rates over 8 percent out of the 40-year period. The 30-year rate did not drop below 6 percent for an extended period until early 2003 and then stayed near the 6 percent rate until the financial crisis in 2008.

Historically, 30-year rates below 5 percent have rarely happened. The period from late 2008 until mid 2010 was unprecedented in regards to low interest rates, both long term and short term. Compared to the average rates from 2000 until 2010, below 5 percent mortgage rates are very attractive.

When rates have started climbing, historically they have moved upward quickly. In the late 1970s, rates went from under 10 percent to the 18 percent record in just three years. Thirty-year rates for 2000 through 2009 were quite steady and averaged 6.3 percent. When considering buying or refinancing a home, homeowners should look at past and current rates and try to determine if they should lock in rates. History has shown that rates can move quickly upward if economic conditions change.