History of Interest Rates

February 18, 2024

Explore the fascinating history of mortgage rates! Our guide offers valuable insights into their evolution and the impact on today's home financing.

Interest rates have been a crucial aspect of the financial landscape for several decades.

From affecting the cost of borrowing to the economy's overall health, interest rates play a critical role in the financial markets.

Over the past five decades, there have been numerous changes in interest rates, which  have impacted various aspects of the financial industry.

Let’s be real. Interest rates have been too low for two long. We’ve all been spoiled by the historically low interest rates that were only meant to stimulate the economy, not sustain it.

With high interest rates and rising home values in Raleigh/Durham North Carolina, many potential homebuyers may be hesitant to make a move.

However, now may actually be the best time to buy a house.

In this article, we will explore the history of interest rates from 1980, focusing on the changes that have occurred and their impact on the financial markets.

Interest Rates 1970-1980:

In the 1970s, the average interest rate for a 30-year fixed-rate mortgage was 7.31%. Later in the decade, rates were quite high, reaching double digits at times.

This was due to several factors, including the oil crisis of 1973, which caused inflation and led to higher interest rates.

Additionally, the Federal Reserve was trying to curb inflation by raising interest rates, which also contributed to the high rates.

Interest Rates 1980-1990:

In the early 1980s, interest rates in the United States hit all-time highs, with the Federal Reserve raising the benchmark interest rate to combat inflation.

By 1981, the Federal Reserve had raised the benchmark interest rate to a record high of 20%, the highest rate in history.

The high-interest rates had a significant impact on the economy, causing a recession that lasted until 1982.

This was due to the Federal Reserve's efforts to fight inflation, which was a significant problem at the time.

By raising interest rates, the Federal Reserve hoped to slow down the economy and reduce inflation.

However, these high interest rates also had negative consequences, such as making it difficult for businesses to borrow money and hurting the housing market.

The high-interest rates also impacted the real estate industry, making it difficult for people to afford homes, and leading to a decline in property values.

According to data from realtor.com, the median home price in the US in 1980 was $64,600. By 1990, the median home price had only increased to $93,200.

Interest Rates 1990-2000:

In the 1990s, interest rates gradually declined, with the Federal Reserve lowering the benchmark interest rate to stimulate economic growth.

This was due in part to the end of the Cold War and the resulting decrease in defense spending, which helped to reduce inflation.

By 1993, the benchmark interest rate had dropped to 3%, and by 1999, it had reached 5.25%.

The lower interest rates made it easier for people to afford homes, leading to a boom in the real estate industry.

According to data from trianglemls.com, the median home price in the US in 1990 was $122,900. By 2000, the median home price had increased to $170,000, a significant increase from the previous decade.

Interest Rates 2000-2010:

In the early 2000s, interest rates remained relatively low, with the benchmark interest rate staying between 1% and 5.25%.

This was due in part to the housing market boom, which led to an increase in demand for credit and thus higher interest rates.

However, this boom was not sustainable, and it eventually led to the housing market crash of 2008.

The burst of the housing bubble lead to a financial crisis that impacted the global economy. This was the decade that led to the historically low interest rates.

According to data from zillow.com, the median home price in the US in 2000 was $136,000.

By 2010, the median home price had increased to $173,000, although the housing crisis had caused a significant decline in property values in some areas.

Interest Rates 2010-Present:

In the aftermath of the housing market crash, interest rates fell to historic lows.

This was due to the Federal Reserve's efforts to stimulate the economy and keep interest rates low to encourage borrowing and investment.

These low interest rates helped to stabilize the economy and led to a period of economic growth.

After the recession, interest rates remained low, with the benchmark interest rate staying at near-zero levels until 2015.

In 2015, the Federal Reserve began to raise interest rates gradually, with the benchmark interest rate reaching 2.5% by the end of 2018.

The higher interest rates made it slightly more difficult for people to afford homes, leading to a slowdown in the real estate market.

However, the overall impact on the real estate industry has been relatively minor.

Marry the House; Date the Rate

While the recent interest rate hikes may seem daunting to homebuyers, it's important to consider the historical context of interest rates in the US.

While rates may be higher than they have been in recent years, they are still lower than the long-term average.

Additionally, even with higher interest rates, the Raleigh/Durham housing market continues to thrive due to strong demand and limited supply.

Furthermore, with the influx of out-of-state homebuyers seeking more affordable housing options and a high quality of life, the Raleigh/Durham area is well-positioned for continued growth and stability.

It's important for homebuyers to carefully consider their financial situation and work with trusted professionals to determine the best course of action in navigating the current market conditions.

Let’s get you preapproved so we can discuss a strategy of how to use this recent rate spike in your favor.

Tim M. Clarke

About the author

17 years as a Realtor in the Research Triangle, Tim seeks to transform the Raleigh-Durham real estate scene through a progressive, people-centered approach prioritizing trust & transparency.

Contact Us

Looking to build / buy / sell in the Triangle? Drop us a line.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.