Outside of periods of global catastrophe, rates have long been considerably higher than they are now.
Outside of periods of global catastrophe, rates have long been considerably higher than they are now.
P resident Trump, Senators Elizabeth Warren and Bernie Sanders, the right-wing nostalgists who insist that a 1960s coal miner could have housed a family at Versailles on a solitary income, and the progressive doomsayers who believe that the main problem with the United States is the continued existence of rich people all presently agree upon one thing: that interest rates are too damn high and that they must come down immediately, lest they squeeze good people out of the market.
They are wrong.
No, no, there’s nothing wrong with wishing it were easier to get a mortgage. And don’t get me started on the many problems with our housing market. But the central conceit — that interest rates, and thus mortgage rates, are “too high” — is just not historically true.
At present, 30-year mortgage rates are sitting between 6.1 percent and 6.3 percent on average. This, indeed, is higher than in 2021, when the average rate was 3 percent. And it is higher than in most of the 2010s, when the average rate was 4.1 percent. But, when compared with the rates of the 1970s, 1980s, 1990s, and 2000s, today’s look pretty darn good. As a matter of fact, one has to go back to the 1960s to find a consistently comparable level. The average rate in the 1970s was around 9 percent, with rates hitting 11 percent in 1979. The average rate in the 1980s was 13 percent, with rates hitting 17 percent in 1981. The 1990s were better than that, but the average was still 8.1 percent, with the decade starting at around 10 percent and ending at around 7 percent. Only the 2000s were comparable to today, with the average rate sitting at around 6.3 percent, as it does now. For context, between 1970 and 2008, the lowest-ever average rate was 5.88 percent, in 2004.
Or to put it another way: Today’s supposedly catastrophic rates are lower than they were during the entirety of the 1980s and 1990s, and lower than they were during most of the 2000s, too. It is true that there was a substantial dip in the early 2010s, as well as a crash in 2021. But, crucially, those were outliers that resulted from historical catastrophes — first, the 2008 global financial crash; then, the Covid-19 pandemic. Unfortunately, we do not live in an à la carte world. To wish for the consequences of those disasters is impossible without wishing for the disasters themselves. Nobody, however frustrated, should be doing that.
Why does this matter? Well, it matters because there is no such thing as a free lunch, and because, while it may feel good to demand aloud that the Federal Reserve simply “lower rates,” there are knock-on effects to such a move that voters would profoundly dislike. One of those effects is inflation — which, having been with us now for nearly five years, has still not returned to its pre-Covid level of around 2 percent per year. It is understandable for a president to want lower interest rates and understandable, too, for Americans to feel as if the housing market is a mess. But those concerns pale in comparison with the raw anger that is caused by unstable money. When our politicians are obliged to choose between allowing inflation to persist and keeping interest rates higher than they would like, they would do well to pick the higher interest rates every time.
Will they? Unclear. Currently, economics is largely an abstraction to our political class, which seems to have decided that its rules are disposable the moment they get in the way of today’s news cycle. Perhaps there is a place where one can enjoy low inflation, low interest rates, low unemployment, and smashing economic growth — but it is not on this earth.