President Carter took office in 1977, during a period of “stagflation,” which is defined as a period in which inflation is high or increasing, economic growth is slowing, and unemployment cannot be measured.
It creates a quandary for economic policymakers because actions aimed at lowering inflation may exacerbate unemployment. As a result of a combination of high inflation and slow economic growth. Carter’s enacted fiscal policies aimed at containing inflation by reducing deficits and government spending. Something that the current administration continues to ignore, with a historic (31) Trillion dollar deficit announced this Month of October 2022.
Responding to long-standing energy concerns, the Carter administration enacted a national energy policy aimed at long-term energy conservation and the development of alternative resources. The later our current administration is determined to proceed with.
In the short term, the country faced an energy crisis in 1979, As growth stalled the U.S. Federal Reserve took aggressive steps to rein in rampant inflation. The Fed did so by raising interest rates to historic highs – so high, in fact, that the going 30-year fixed mortgage rate stood at 18.5% in 1981.
We will no longer be an independent leader in oil production, in my opinion, once our oil reserves are depleted, which is expected by the end of this 2022 year.
To stabilize infrastructure funding, the federal government will need to engage their gas price tariffs, and local and state agencies in many states will be forced to engage their fuel tariffs, which have been waived for the month of October 2022. Our level of assurance may well rival that of the late 1970s!
At the time, an $82,000 home, with 20% down, would cost $1,109 a month, excluding fees, taxes and insurance.
If 18.45% mortgage rates were still around today, a $322,700 home, with 20% down, would cost $3,986 a month, with total interest payments over 30 years of the loan amounting to $1.18 million.
Today, at 4%, that same $322,700 home costs about $1,232 a month, with a total cost of about $444,000 over 30 years.
As inflation ebbed in the 1980s, U.S. mortgage rates gradually slid downward, and kept sliding, well into the 21st century:
Yearly Average Mortgage Rates:
- 1981 17.00%
- 1985 12.96%
- 1990 10.31%
- 1995 9.13%
- 2000 8.25%
- 2005 5.66%
- 2010 4.98%
- 2015 3.66%
- 2019 4.45%
What Has Been the Impact of Mortgage Interest Rates?
In the U.S., the price of borrowing large sums of money from a bank or a mortgage lender began to take hold on the populace in the mid-20th century, and has never lost its grip, even through a series of severe downward economic cycles (including severe recessions in 1973-75 and 2007-09).
As history has shown, American families have always sought greener pastures, particularly when they were working in good jobs with decent pay and were willing to borrow more money for a new home.
As interest rates fell in 2019, Americans continued to rely on the mortgage interest rate model to buy and refinance new homes, a trend that will continue until April or May of 2022!
The Federal Reserve’s continued involvement in the nation’s economy, reducing rates when the economy is in danger and increasing them when the economy becomes overheated, therefore consistently changing the mortgage market around the edges.
Nonetheless, economists do not expect the US mortgage market to revert to the late 1970s and early 1980s, when interest rates peaked at 18%. That’s good news for today’s home buyer, who, like his or her forefathers in ancient Rome, still believes in the concepts of “pledge” and “death” when it comes to obtaining a mortgage to purchase a home.
While it is well known that history repeats itself, will our current administration and President Biden become the next President Carter to bring the American dream to it’s knees?
What are your thoughts?