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50 Years of Homebuying: A Look at Interest Rates Over Time

We all know that home prices change over time. It’s one of the reasons we invest in real estate in the first place—because we know that a home you buy today is likely going to be worth a lot more tomorrow! But did you know that interest rates have also changed a lot over time… and it’s not how you might think!

Interest Rates Over Time Might Surprise You!

infographic of interest rates over time

If you think your parents or grandparents probably had much lower interest rates than you will, you’re actually pretty far from the truth. Interest rates have fluctuated a lot over the past 50 years, and definitely not how you might think.

The 70s saw sky-high rates

You don’t have to know what today’s rates are to know that interest rates of 8.86% are pretty high. That’s high for a car loan… but it’s also sky-high for a house. One of the reasons for these astronomical rates was inflation, which began rising in the early to mid 70s.

… But the 80s were even higher

Inflation continued to climb into the 80s, and lenders raised rates to combat the economy’s flagrant boom. Rates hovered around 12.7%… with highs climbing to over 18% in 1981!

Rates dropped in the 90s… a little

The interest rate hike did improve inflation, and the economy eventually leveled off. In the 90s, rates fell back into the 8% range—still high, but definitely more manageable than the rates of the 80s.

Rates continued to fall into the 2000s

From the 90s into the 2000s, rates continued to drop into the low 6% range, heading into the housing boom prior to the 2008 market drop. During this time, the combination of low interest rates and low home prices lead to a housing “bubble” that encouraged risky home buying, and ultimately lead to the 2008 housing crisis. Following the collapse, interest rates climbed again, though not significantly.

The 2010s saw all-time historic lows

historic lows of interest rates over time

After the 2008 collapse, the real estate market slowed considerably. Many previous owners had foreclosed on their homes, while others were forced into short sales (selling for less than they owed), and once-likely buyers were wary of trapping themselves into a similar scenario.

To bolster the market and encourage buying, the Federal Reserve continued to lower rates until they reached an all-time historic low of 3.31% in 2012. This did the trick, and the market started to pick back back up… until 2016 once again saw a booming and robust housing industry.

Today’s rates are almost historically low again!

Rates in the late 2010s began a climb upwards from the 2012 low, with rates in 2018 hitting highs close to 5%. Experts predicted 2019 would see rates over 5%, but in a surprising twist, rates actually fell!

Now, even with mortgage rates expected to increase a bit over the next year, they’re currently hovering near a five-decade low. In fact, rates are just 3.49% today… which approaches the all-time low of 3.31%. So while your home likely is going to cost you more than your parents’ or grandparents’ homes, your loan is going to cost you significantly less… and that’s a pretty big deal.

Interest Rates Are a Big Deal!

calculating interest rates over time

Just how much do interest rates matter? Let’s say that your parents bought a $100,000 home at the 1981 peak rate of 18.63%, and you buy your home—also $100,000—at the 3.49% rate of 2020. Your parents would be paying $1,558 a month for their home… while your mortgage payments would be just $448. That’s $1,110 LESS a month, $13,320 LESS a year, and $399,600 LESS over your 30 year loan.

That’s a tremendous difference. Interest. Rates. Matter. Big time.

Want to Buy a Home in Raleigh While Rates Are Low?

Ready to buy while the market is in your favor? Then it’s time to contact Linda Craft & Team and let us put our 350+ years of real estate experience to work for YOU! First home? Tenth home? Doesn’t matter; we’ll work hard to make sure you find the perfect home in just the right spot.

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