The Highest Mortgage Interest Rates: A Journey Through Economic Booms and Busts
Throughout history, the United States has experienced significant economic shifts that have influenced mortgage interest rates. The most notable period was in 1981, when the average mortgage rate reached a peak of 18.63%. This article explores the context behind these high rates, drawing from personal experiences and historical events.
The Peak of Mortgage Rates: 1981
The highest average mortgage rate in the United States since 1971 was recorded on October 9, 1981, reaching 18.63%. It's essential to note that despite this average, many individuals paid even higher rates on that day. In Midland, Texas, for example, a mortgage rate of 16.5% was common, and it even reached as high as 20%.
Personal Experiences and Historical Context
Living in Midland, Texas during the 1980s, my family was deeply affected by the volatile mortgage market. In 1983, my mortgage rate was 16.5%, although it had been as high as 20% at one point. This was a stark contrast to the low rates we experienced in 1975 when we bought a home for 8%. Our home purchased in 2012 featured a much more manageable rate of 3.25%.
The high mortgage rates of the 1980s were fueled by several factors, including runaway inflation, rising oil prices, government overspending, and increased wages. In essence, these factors pushed the general price of goods and services higher, leading to the term 'inflation.'
The Impact of the Oil Boom and Bust
Our decision to buy a house in Midland, Texas, was made amidst an oil boom. Living in a town with practically no housing options, we were compelled to buy a home for our school-age child. However, the oil industry is notoriously cyclical, and the boom did not last. Three years after our purchase, the oil prices plummeted, leading to an oil bust. This economic downturn forced us to sell the house for only 80,000 dollars, significantly less than the original purchase price of 108,000 dollars. We had to write a check to cover the shortfall at closing and suffered a significant blow to our savings. Unemployment followed, and we were forced to move.
Small business and local industries were also heavily impacted. Geologists, previously making decent wages, found themselves taking minimum wage jobs. The local Rolls Royce dealership closed its doors, and it was transformed into a tortilla factory. The economic downturn was so severe that even major financial institutions faced challenges. A huge privately owned bank was foreclosed upon, and federal officials had to step in to take control. By 1987, 1500 houses were on the market in a town of approximately 100,000 people, and around 5,000 people (5% of the population) had left the area.
Lessons from History
Our experience highlights the importance of financial flexibility and long-term planning. When we finally decided to act, it seemed wise to let the house go into foreclosure rather than sell it at a loss. At that time, mortgage providers were not as lenient as they would become later, making the situation even more challenging. Many individuals and families found themselves facing similar tough decisions but with less favorable outcomes.
The economic lessons from the 1980s are strikingly relevant today. They underscore the unpredictability of the market and the importance of preparing for downturns. In the face of such economic challenges, institutions and individuals must remain adaptable and resilient.