When mortgage rates are high, the economy is at a low because not many people can afford to mortgage in order to invest money in new properties, so the economy suffers. This scenario slows down the building trade as no one is filling up pre-existing houses and it means that less money is being put into the economy.
When mortgage rates are low, more people can afford to invest in properties which they couldn’t afford previously when the rates were higher. As soon as the rates reach a low affordable level for people, those with low income are finally able to buy their own homes, so more are bought up relatively quickly before the mortgage rates rise again. The building trade starts to pick up again as building workers get more and more contracts for buildings that people want to live in and the economy starts to recover for a while.
For over 20 years, we have not seen mortgage rates hitting double , although things were very different before that. In the 1970’s and 1980’s, mortgage rates 10% and over were normal rates that people were expected to pay and it wasn’t until 1985 when the Reagan administration abolished the misery index and stagflation that mortgage rates decreased to about 7%, the lowest point since before Carter’s reign as President.
Since Reagan’s time, mortgage rates have varied between the lowest point at 5.5% and the highest point at 9%, so the economy has stayed relatively stable in this regard. It is not unaffordable for people to acquire mortgages with these rates and over the past few years mortgage rates have fluctuated between these two percentages.
Throughout the 1990’s, mortgage rated did not increase above 9% but the lowest rate available did increase to 7%. These were the mortgage rates on 30 year mortgages that were taken out during this period.
When G.W.Bush took office, the mortgage interest rate was set relatively close to 9% but during his first term it actually decreased quite steadily. In 2003, the interest on mortgage rates even went as low as 4.75%. After this point, interest rates increased slightly to between 5.5% and 6.5% but the rates never went any higher.
This was an uncommonly stable period for mortgage rates and not surprisingly, considering the stable interest environment, the housing market added a huge boost to the economy because people started buying fast. However, this led to people overbuying properties and the economy suffering from it.