Rates Then & Rates Now

In November of 2022, mortgage rates experienced their largest dip in 41 years. This decline was followed by consecutive decreases, reaching a final closing of 6.42% by the end of the year.?

Throughout 2023, rates were constantly battling between high inflation and Federal Reserve action to restrain it. The lowest average rate during this time period was 6.09% on February 2nd and peaked at 6.73% on March 9th.

The average mortgage rates that we're going to explore are just a benchmark. If you have a good credit score and healthy finances, you may be able to get mortgage rates well below the industry norm. That's why it's important to check your personalized rates to see what you qualify for.

Mortgage rates chart for 2022 and 2023

In 2020 and 2021, mortgage interest rates hit record lows during the Covid pandemic. This was due to emergency actions by the Federal Reserve, which pushed rates below 3%. In 2022, however, mortgage rates started to surge as inflation got out of control. According to Freddie Mac’s records, the average 30-year rate rose from 3.22% in January to a high of 7.08% at the end of October.

Fixed mortgage rates, on 30-year fixed mortgages, continued to fluctuate between 6% and 7% early this year. By the end of the first quarter, rates have slowly decreased and are now more in line with market conditions. This has motivated buyers to come back onto the market in time for the spring homebuying season.

Housing experts anticipate further interest rate declines until there is more certainty in the financial markets. The Federal Reserve's decision to increase the benchmark rate by only 25 basis points on March 22 has not generated the desired results and caused a decrease in housing prices.

Current mortgage interest rates chart?

Historical mortgage rates chart

Freddie Mac's current 30-year fixed-rate mortgage rate is more than double its all-time low of 2.65%. Looking over the long term, rates are still below the historical average. Freddie Mac has been keeping records since 1971, and during that time, 30-year fixed-rate mortgages averaged 7.75%. So today's rates might seem high, but they're in line with past averages.

Historical 30-year mortgage rates chart

Mortgage rate trends over time

For some perspective on today’s mortgage interest rates, here’s how average 30-year rates have changed from year to year over the past five decades.

Will mortgage rates go back down?

The Federal Reserve's aggressive measures against inflation last year led to four historic rate hikes of 75 basis points (.75%) each in June, July, September, and November. Although mortgage rates are not directly affected by the Fed's actions, they've been spurred higher due to the inflationary pressures the central bank has attempted to address.

In December, the Federal Reserve made the decision to slow down the pace of interest rate hikes, cutting the fed funds rate by only 50 basis points (.50%). They continued to slow down the tempo in 2023, as we've seen with two recent 25 basis point (.25%) cuts in February and March. The current fed rate now sits at 4.75% to 5%.

The Federal Reserve is likely to keep hiking rates in 2023, but it's not clear yet how steep or frequent these increases will be. However, housing experts predict that rates will ease later this year. Borrowers should not try to time their rates in this market. The best advice is to wait until you're financially ready and can afford the home you want, no matter what current interest rates are. Remember that your mortgage rate is not forever set. If rates go down significantly, you can always refinance at a lower cost.

Historic mortgage rates: Important years for rates

The long-term average for mortgage rates is typically just under 8 percent, according to Freddie Mac data going back to 1971. However, rates can move a lot from year to year, and some years have seen much larger moves than others.

Let’s look at a few examples to show how rates often buck conventional wisdom and move in unexpected ways.

1981: The all-time high for mortgage rates

1981 was the worst year for mortgage interest rates on record. How bad is bad? The average mortgage rate in 1981 was 16.63 percent.

• At 16.63%, a $200,000 mortgage has a monthly cost for principal and interest of $2,800
• Compared with the long-time average that’s an extra monthly cost of $1,300 or $15,900 per year

This was just the average! For the week of October 9, 1981, mortgage rates averaged 18.63%. This was the highest weekly rate on record and almost five times the 2019 annual rate.

2008: The mortgage slump

2008 was the final gasp of the mortgage meltdown. According to Freddie Mac, the average interest rate for mortgages in 2008 was 6.03%.

• The monthly cost for a $200,000 mortgage was about $1,200 per month, not including taxes and insurance

Post-2008, rates declined steadily.

2016: An all-time low for rates

Until recently, the average mortgage rate in 2016 was 3.65% which was the lowest annual mortgage rate average since 1971 according to Freddie Mac.

• A $200,000 mortgage at 3.65% has a monthly cost for principal and interest of $915
• That’s $553 a month less than the long-term average

In 2012, one week in November averaged 3.31% which was significantly lower than the average of 3.65% for the entire year. Overall, however, mortgage rates throughout the year averaged out at 3.65% for a 30-year mortgage.

2019: The surprise mortgage rate drop-off

In 2018, many experts predicted that 2019 mortgage rates would peak around 5.5%. That turned out to be wrong, as rates actually dropped in 2019. The average mortgage rate went from 4.54% in 2018 to 3.94% in 2019.?

• At 3.94%, the monthly cost for a $200,000 home loan was $948
• That’s a savings of $520 a month — or $6,240 a year — when compared with the 8% long–term average

In 2019, it was thought that mortgage rates couldn't go much lower. However, in 2020 and 2021, mortgage rates actually went even lower than they did in 2019.

2021: The lowest 30-year mortgage rates ever

In 2020 and 2021, mortgage rates plummeted as a result of the Coronavirus pandemic. By July 2020, the 30-year fixed rate had fallen below 3% for the first time. And it kept falling until January 2021, when it hit a new record low of 2.65%. The average mortgage rate in 2021 was 2.96%.

• At 2.65%, the monthly cost for a $200,000 home loan is $806 a month not counting taxes and insurance
• You’d save $662 a month, or $7,900 a year, compared to the 8% long-term average

However, the low interest rates of earlier were largely due to accommodative Fed policies from the Covid era. These measures were never meant to last, and as the US and world economies recover from their Covid slump, interest rates are likely to go up.

2022: Mortgage rates spike

Thanks to the sharp increase in inflation, higher benchmark rates, and a slowdown in the housing market caused by the Federal Reserve's mortgage stimulus program, mortgage rates rose sharply in 2022.?

According to Freddie Mac's records, the average 30-year rate climbed from 3.22% in January to a high of 7.08% at the end of October. That's an increase of nearly 400 basis points (4%) over ten months and I would consider that extreme.

As the year came to a close, the average mortgage rate went up by almost 250 basis points (2.5%), from 2.96% in 2021 to 5.34% in 2022. However, if the Federal Reserve manages to keep inflation under control or the United States enters into a recession, rates could drop slightly.

How does the cost of borrowing stack up over the years

In doing research on this topic I was curious as to how the higher interest rates of previous decades stacked up with the average interest rates of the more recent decades. Housing prices were much lower in the 80s and 90s compared to the 2010s and 2020s.

• In 1985 the annual average interest rate was 12.96% and the average home price was $100,825. That means you would pay a total of $299,495 in interest for a grand total of $400,320.
• In 1995 the annual average interest rate was 9.13% and the average home price was $157,750. That means you would pay a total of $304,490 in interest for a grand total of $462,240.
• In 2015 the annual average interest rate was 3.66% and the average home price was $350,450. That means you would pay a total of $227,350 in interest for a grand total of $577,800.
• In 2021 the annual average interest rate was 3.15% and the average home price was $531,300. That means you would pay a total of $290,580 in interest for a grand total of $821,880.
• In Jan. - Feb. of 2023 the annual average interest rate was 6.27% and the average home price was $432,350. That means you would pay a total of $528,130 in interest for a grand total of $960,480.

There are a number of factors to consider when comparing interest rates and housing prices over time. For example, inflation rates, average home size, global and domestic economic events, and many more factors can have an impact. However, it's still very interesting to look at how much interest has been paid from the data above.

The Bottom Line: Like All Things Economic, Interest Rates Are Cyclical

Looking at all the mortgage rate data available from Freddie Mac, it appears that rates have been dropping every decade, until now. The average rate in 1971 was 7.54%. As of 2020, the average rate was 3.11%. Rates that low are likely not going to be seen again for a while.?Currently, interest rates sit between 6.5% and 8%.

When to lock your mortgage rate

Keep an eye on daily rate changes, or work with a trusted advisor that monitors these changes for you. If you get a good mortgage rate quote today, don’t hesitate to lock it in!

You should ALWAYS consult with a licensed mortgage advisor, but my personal current rate-lock recommendations are:

• LOCK?if closing in?7?days
• LOCK?if closing in?15?days
• CONSULT A PROFESSIONAL?if closing within?30?days
• FLOAT?if closing in?45?days
• FLOAT?if closing in?60?days

In light of all the uncertainty in the economy, your gut instincts may be just as good as mine. So use your judgment and also remember that average mortgage rates are only a general guideline. If you have good credit and strong personal finances, you're likely to get a lower rate than what's being reported. But please, ALWAYS check with a licensed mortgage advisor, like myself, to get professional advice. You never know what you may qualify for. I'm always happy to help and you're in the best hand!

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