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Mortgage Rates: An Interesting Historical Perspective…

June 15, 2010 by MSI

Last week 30-year fixed rate mortgages remained at near record low levels, with Bankrate.com reporting an average rate of 4.88 percent, down from 4.95 the week prior and down from a 2009 same week rate of 5.29 percent. While the consumer market watches rates closely and mortgage experts and economists alike make weekly predictions on where the rates may go in the short term, I am moved to look back at where we’ve come from over the past 45 years. As I began my research I came across an interesting report, the Federal Housing Finance Agency Report, “Terms on Conventional Single-Family Mortgages, Annual National Averages, All Homes.” As I read through the report, I began to think, have things really been that bad?

In 1963, according to the Report, the contract interest rate stood at 5.9 percent. Of course, in 1963 the average purchase price was $20,600 and the loan to price ratio stood at 71.7 percent.

Throughout the 60s and 70s, interest rates continued to rise as the average home purchase price nearly quadrupled reaching $73,400 in 1980. The early 80s saw interest rates hit their 45-year peak with a contract interest rate of 14.73 percent in 1982. During this period and throughout the 80s loan to price ratios remained in the low 70 percent.

It wasn’t until the early 90s when we witnessed a significant shift with loan to home ratios at just under (79.9) 80 percent in 1994 and 1995. While we all know what has occurred in the millennium thus far, it’s interesting to note that, according to this report, things aren’t as bad as they seem. While the average purchase price dipped from $307,100 in 2006 to $300,500 in 2007, interest rates also dropped from 6.54 percent to 6.45 percent during that same period. And, in 2009, we ended the year with a 46-year record low contract interest rate of 5.05 percent and an average purchase price over just over $307,000.

Like most Americans I read the paper every day, albeit online, and follow the trends, so where do we really stand. My final question, “How bad is it really?”