The average 30-year mortgage rate was hovering around 7% in early December 2023, according to Federal Reserve of St. Louis data. At the same time three years prior, the average 30-year mortgage rate was under 3.00%, its lowest point in 50 years.
Borrowers today are grappling with some of the highest mortgage rates we’ve seen in decades — but they aren’t actually the highest they’ve ever been. In the fall of 1981, the average 30-year mortgage rate reached an all-time high of 18.63%. We’ll examine mortgage trends for the past five decades and look ahead to see what borrowers can expect in 2024.
Mortgage rates of the past 50 years
Mortgage rates have fluctuated wildly over the past half-century.
The rates borrowers are seeing today mirror the mortgage rates of the early 1970s, when the Fed began collecting data. Influenced by global events and rampant inflation, borrowing rates began to climb in the late 1970s and peaked in the early 1980s. Toward the end of the decade, rates returned to a more comfortable level and continued to decline over the coming years before reaching an all-time low of 2.65% in early 2021.
During periods of economic stability or decline, mortgage lenders lower rates to entice buyers. Lower rates mean lower monthly payments, which makes homebuying more affordable. During periods of high inflation and federal fund rate hikes (like we’re experiencing now), lenders raise rates to offset their increased cost. Homebuying becomes more expensive and even out of reach for some aspiring homeowners.
Generally, 15-year mortgages are more affordable than 30-year loans because they’re less risky for lenders — it’s easier to make economic predictions over the shorter time frame, and the lender assumes fewer years of risk. Rate trends for 15-year loans follow those for 30-year mortgages; they typically rise and fall together, often separated by about 0.70 percentage points.
Note: The Federal Reserve Bank of St. Louis has tracked 30-year mortgage rates since April 1971, but has only recorded 15-year mortgage rates since August 1991.
Mortgage rates by decade
The 1970s
In the early 1970s, 30-year mortgage rates held steady in the low- to mid-7% range. By the middle of the decade, they rose into the 8% and 9% range before peaking at nearly 13% as the 1980s arrived.
During the 1970s, the U.S. economy was battered by a phenomenon known as stagflation — high inflation and unemployment coupled with a stagnant economy. The Iran oil embargo was a huge contributor to rising crude oil prices, and the federal deficit rose due to military spending during the Vietnam War, both of which significantly impacted the overall economy.
The 1980s
In the late 1970s, prices had started to soar. Rampant inflation came to a head in the early 1980s, reaching record highs.
The Iranian revolution of the late 1970s led to a massive decline in oil production. That forced industrialized countries to adapt by doing two things: finding alternative sources of oil and finding ways to use less of it.
Non-OPEC oil production ramped up in the early 1980s, and as a result, OPEC cut oil production. Oil prices declined 40% between 1981 and 1985, according to the Brookings Institution, thereby helping to ease inflation.
In February 1980, the average 30-year mortgage rate was 12.85%. By October 1981, the average rate had risen to a whopping 18.63%.
Mortgage rates gradually cooled as the decade wore on. By March 1985, the average 30-year mortgage rate was roughly 13%, and at the end of the decade, rates dipped below the 10% mark.
The 1990s
During the 1990s, the U.S. economy benefited from low unemployment, solid growth and low levels of inflation. After a brief recession at the start of the decade, the economy boomed beginning in 1993 and was stronger than it had been in decades. Innovations in technology helped to bolster the economy, as did broad deregulation efforts.
The average 30-year mortgage rate was almost 10% at the start of 1990. By late 1993, it had fallen below 7%. Through the rest of the decade, mortgage rates fluctuated between 7% and 9%, with an average rate of 8.12%. The rates borrowers received in the late 1990s were comparable to the rates borrowers are facing today.
The 2000s
It would be fair to classify the 2000s as a decade of economic turmoil. The dot-com bust wiped out $5 trillion in stock value, which led to a stock market crash and the 2001 recession.
Later in the decade, the subprime mortgage crisis rocked the housing market. Easy access to borrowing and a lack of regulation in the mortgage industry led to widespread foreclosures and plummeting home values.
In response, the Fed substantially cut interest rates early in the decade. Although borrowing rates for homeowners were comparable at the start of the 2000s to where they are today, by mid-2003, the average 30-year mortgage rate had fallen to a little over 5%. For the next few years, rates held steady in the 5% and 6% range.
Following the housing market crash, lenders had to take action to drum up demand, and lowering rates was the best way to do it. By December 2009, the average 30-year mortgage rate had fallen to 4.71%.
But it wasn't just the housing market that suffered in the late 2000s — the broader economy also took a hit. The Great Recession lasted from December 2007 through June 2009 and was the sharpest decline in economic activity the U.S. had experienced since World War II.
The 2010s
The U.S. economy recovered nicely from the Great Recession during the 2010s. Tighter lending practices in the wake of the subprime mortgage crisis helped the mortgage and housing markets stage a comeback, and consumers enjoyed record-low interest rates.
In early 2010, the average 30-year mortgage rate was around 5%, but by mid-2012, it was closer to 3.5%. When the Federal Reserve announced in May 2013 that it would sunset its unpopular bond-buying program, the bond market dropped, which caused mortgage rates to spike by a full percentage point. Rates held steady between 3% and 5% range through the second half of the decade.
The 2020s
The COVID-19 outbreak in early 2020 fueled a widespread economic crisis that drove unemployment to soaring highs and sent stock values plummeting. Mortgage rates plunged to record lows in the wake of the pandemic. In January 2021, the average 30-year mortgage rate was an astonishingly low 2.65%. Rates held steady in the upper 2% and low 3% range throughout the year.
Meanwhile, inflation crept upward in 2021, thanks to supply chain issues and generous economic stimulus packages. By mid-2022, it was soaring. The Fed began to raise interest rates in an effort to ease inflation, and mortgage rates followed suit.
By mid-May 2022, the average 30-year mortgage rate reached 5.3%, and rates soared past the 6% mark by the end of the year. Rates reached 7.79% in October 2023 — the highest in 20 years. As of November 2023, the average 30-year mortgage rate was 7.22%.
Mortgage rate forecast
It’s difficult to predict exactly where mortgage rates are headed, but in light of cooling inflation and in an attempt to avoid an economic recession, the Fed hit the brakes on interest rate hikes. Many experts believe that the central bank will be inclined to let things settle for the next few months while it tracks economic data.
There’s a good chance that the Fed will seek to cut rates on a small scale in 2024. If that happens, mortgage rates should follow.
“There's room to speculate about a potential modest rate hike for mortgage rates in the near term,” said Matt Dunbar, regional senior vice president for Churchill Mortgage. “Regardless, I expect any such adjustment to be restrained.”
This cautious stance could mean mortgage rates may stabilize and drop slightly in 2024.
“The Fed's recent hesitancy on rate hikes suggests a strategic evaluation of how prior actions impact inflation and the economy at large,” Dunbar said. “Acknowledging these complexities, I anticipate a tilt toward lower rates starting mid-2024, gradually extending into 2025.”
However, the days of record-low borrowing rates are likely behind us. The economic crisis of 2000 was truly unprecedented. It’s unlikely that mortgage lenders will be in a position to offer rates that low anytime in the next decade, barring another unwanted catastrophe.
How mortgage rates influence the housing market
Higher mortgage rates typically lead to a decline in demand because the cost of homeownership is more expensive. At today’s fixed rate of 7.22%, a $200,000, 30-year mortgage will cost $1,360 a month in principal and interest. At 5%, that same loan costs just $1,073 a month.
High rates can block the path to homeownership. With fewer borrowers able to afford a costly mortgage, housing market demand declines. However, that hasn’t happened in today’s market due to record-low inventory levels stemming largely from COVID-19 side effects — namely, supply chain issues, the inflated cost of materials and persistent labor shortages that have hampered new home construction.
How mortgage rates affect refinancing
When mortgage rates are low, refinance activity tends to pick up as borrowers look to capitalize on affordable rates. This explains why mortgage lenders were inundated with refinance applications in 2020 and 2021.
Higher rates tend to slow mortgage refinance demand. That’s especially true today since many homeowners locked in lower interest rates several years ago. If you have a mortgage with a 3.00% interest rate, refinancing into a 7.22% interest rate won’t sound appealing.
But there are certain scenarios where a refinance can make sense, even when mortgage rates are high. An improved credit score could mean you’re eligible for a more preferable rate, even in an environment like the one we’re in today.
Also, due to strong home values, many property owners are sitting on tappable equity. Consumers with high-interest debt may consider a cash-out refinance to consolidate that debt and lower its overall interest rate, even with today’s mortgage rates being high. That said, you might prioritize a home equity loan or line of credit since it could allow you to keep your current mortgage rate.
Frequently asked questions (FAQs)
The Federal Reserve has raised its benchmark interest rate 11 times since March 2022 to slow inflation, making it more expensive for banks to borrow money short-term. Between that and rising yields on the 10-year Treasury, mortgage rates are elevated.
We could see a modest drop in mortgage rates in the coming year, but it will hinge largely on factors that include broad economic activity and Federal Reserve policy. It’s extremely unlikely that we’ll see sub-3% rates any time soon, if ever.
Homebuyers in the early 1980s were subject to the highest mortgage rates in history — rates peaked at 18.63% in October 1981 and remained generally high throughout the 1980s.
Buying a home when mortgage rates are high will mean taking on higher monthly payments. If you can afford to wait to buy until rates come down, you can potentially save thousands of dollars in interest over the life of the loan.
