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How people bought homes in the 1980s when mortgage rates were 18% (assumable mortgages)


hegemony
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On 12/5/2022 at 10:16 AM, hegemony said:

 

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The hopeful news is that America has been through this before — in 1981 — and things eventually got better. The sobering news is that the early-’80s housing market stayed alive courtesy of some factors that barely exist this time around. We will have to construct a new path out of this mess.

How 2022 resembles the early ’80s ...

 

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Holy crap!  At first take, I guessed "Holden" (the author) might have just breached 30 and seriously didn't have any recollection whatsoever of what went on prior to 2000.  A peek at his LinkedIn reveals he graduated with a BA in 1985, suggesting he's about ready to round up to 60.

 

There's nothing about the current mortgage market that is at all reminiscent of the debacle when rates went sky high in 1982.  If you want a comparable period, let's talk the 1990's when rates steadied at 7%+ through the decade.  (Of course, people were relieved by the rate DROP, not talking as if the sky was falling.)

 

Holden speaks of the present rate spike as if current rates are entirely anomalous with historical trends.  As he writes, "We will have to construct a new path out of this mess."  I assume his rear view mirror is covered with bird crap because a glimpse at the 50-year trend chart above suggests that <4% mortgage rates are what's anomalous. 

 

Look, I'm very sensitive to the fact that the last 10 years of exceptionally low mortgage rates has fostered a home price bubble that now, rates having spiked, has brought home affordability to it's worst standing in 30 years.  And I have fingers crossed that rates pull back to at least the 5% level in the near term.  But I hope that no one looks for rates to drop back to 3% (or even 4%) any time soon.  It took an economic/mortgage crisis to pull rates that low; while such low rates persisted longer than I'd have anticipated, no one should have expected that such rates were the new "norm".

 

Forgive me for bristling that an unfortunate set of rate hikes prompts some writer to draw comparisons with one of the worst real estate crashes in history (existing home sales fell by over 50%, in 1982 vs roughly 30% in the last year with strong signs of having bottomed out). 

 

A more judicious soul might bring reason to his readers by pointing out that while the market has become difficult, 2-4 years of patience will likely see the market equilibrium swing to stronger affordability (higher incomes, soft decline in home prices).  And, yeah, in the interim there are some tactics that can help with affordability. 

 

(In 1993, I financed into a 7/23 30-year mortgage, rate fixed for 7 years, to get a lower rate than provided by a traditional 30-year fixed rate loan.   I banked on likely moving before the rate reset, or that rates would drop.  We actually stayed in the home for 18 more years, with 2 refi's to take advantage of lower rates.)

 

 

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