Mortgage Rates during Reagan Administration: A Decade of Change

The Reagan administration, which spanned from 1981 to 1989, was a transformative period for the US economy. Mortgage rates during this time saw a significant shift, influenced by the Federal Reserve's monetary policies.

The prime rate, which directly impacts mortgage rates, was at 21.5% in June 1981, its highest point in over 30 years. This high rate made borrowing extremely expensive.

As the decade progressed, the prime rate gradually decreased, reaching 8.5% in 1988. This reduction in rates made it more affordable for people to buy homes and refinance existing mortgages.

The average 30-year fixed mortgage rate in 1981 was around 16.5%, while by 1988 it had dropped to around 10.1%.

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The 30-year fixed mortgage rate was a whopping 14.21% in November 1980, the month of Reagan's election victory.

Reagan's inauguration in January 1981 marked a slight increase in mortgage rates, which averaged 15.13% for the month of February 1981.

The trend continued throughout 1981, with mortgage rates ending the year at a staggering 16.95%.

In contrast, mortgage rates were relatively low in November 1972, averaging 7.43% just before Nixon's inauguration.

Interestingly, rates barely budged in February 1973, averaging a mere 0.01% higher than in November 1972.

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The 30-year fixed mortgage rate saw a significant jump after Reagan's inauguration, averaging 15.13% in February 1981, a full percentage point higher than the 14.21% average in November 1980.

This trend continued throughout 1981, with the 30-year fixed averaging 16.95% by the end of the year.

Reagan's presidency marked a notable shift in mortgage rates, demonstrating how presidential transitions can impact the economy and mortgage markets.

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The economy went through a rollercoaster in the 1980s, with a harsh recession that led to a significant drop in inflation, averaging just 4.3% over 10 years.

High interest rates caused a recession, but it also led to falling interest rates, which juiced the economy and California's housing market.

In California, housing prices rose 95% during this period, with 23% annualized gains and 10% declines.

Buyer's house payments rose only 3% in 10 years because rates fell from 17.7% to 8.7%.

Savings and loans (S&Ls) went out of business, costing U.S. taxpayers at least $125 billion and eliminating California's friendliest lenders.

The post-Great Recession economic rebound helped housing, and homeownership became the new "must-have" item in the pandemic era, with mortgage rates pushed to a record-breaking low of 2.65% in 2021.

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Reagan's presidency had a significant impact on the economy, particularly when it came to interest rates. The 30-year fixed averaged 14.21% in November 1980, just before his inauguration.

This rate actually increased to 15.13% in February 1981, the month after he took office. The economy was already in a challenging state, and this further fueled inflation.

By the end of 1981, the 30-year fixed had risen to 16.95%, a stark contrast to the 7.43% average in November 1972, under the previous administration.

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