Remember when mortgage rates flew past 18% in the ’80s?
The 1980s birthed iconic slices of Americana like Madonna’s music career and TV shows like “The Wonder Years” and “The Golden Girls.”
The decade also delivered moments of economic strength that compelled President Reagan to run the “It’s Morning Again in America” campaign ad.
But mortgage rates in the 1980s weren’t exactly something worth jumping out of bed over.
The 30-year, fixed-rate mortgage hit a record high of 18.63 percent in 1981 and remained in the double digits for most of the decade, according to Freddie Mac historical data. That may seem exorbitant and unheard of today, when prospective buyers are getting priced out by rates that have slipped over 7 percent. Higher interest rates cooled off some of the buying frenzy seen during the early months of the pandemic, when the average 30-year, fixed mortgage rate dipped below 3 percent.
Homeowners who bought their homes in the 1980s agree it was often a financial stretch, but several factors made buying more feasible then than it is today. How can that be when mortgage rates were high and competition was heated?
“We would go to the real estate offices to see houses, and there would be lines out the door of people trying to buy houses because every week it seemed like the prices would go up,” said Gayle Fee, a retired newspaper columnist who purchased a home with her husband, Alan Peterson, in Milton in 1983 at a 13 percent mortgage rate. “It was runaway inflation then. It was scary.”
Michael Robinson, a Bostonbased nurse, said he waited outside a bank for days to lock in a first-time home buyer mortgage for $33,000 at a rate of 11 percent for his home in Marshfield, which he purchased in 1983.
“My principal each month was something like $15, and all
Times were better back then for home buyers. Here’s why.
the rest was interest. My mortgage payment was something like $400, but I was also making $7 an hour,” Robinson said. “That’s why I sat in front of the bank. My real estate agent, who was a family friend, called me and said, ‘You need to go do this.’”
Steve Fox, moderator of the South End Forum community group on Facebook, recalled his fortune of locking in a 10 percent rate at the time. It was still steep, but the thinking at the time was: Get your foot in the door, then refinance when the rates go down — even if it means juggling a high mortgage payment and student loans without any of the parental help many young home buyers get today.
“We refer to those 10 years as the Ramen years,” Fox said with a laugh. “If we got a chance to go out to dinner, it was a very big deal and hopefully somebody else was paying.”
It may seem like a head-scratcher to think about the housing market being competitive with mortgage rates in the teens, but the median sales price of a home in Greater Boston was $82,300 in 1983, according to a Federal Reserve Bank of Boston report using National Association of Realtors data.
If someone makes a 20 percent down payment and secures a 30-year fixed-rate mortgage at 13 percent, that means a monthly payment of nearly $850. Today, when the median sales price of a Greater Boston home is $910,000, according to the Greater Boston Association of Realtors, that means a monthly payment of $8,718.
“Even though the interest rates were very high, the prices were so low that it was feasible,” said Phyllis Levin, a Swampscott-based agent with Sagan Harborside Sotheby’s International Realty.
Admittedly, wages were lower at the time, but the median sales price of a home in the United States is now 560 percent of the median household income — making for the least affordable housing market in the nation’s history — compared with just under 150 percent in 1984, the financial real estate site Ganges Post reported, utilizing data from the Census Bureau and the Department of Housing and Urban Development.
It wasn’t struggle-free back then, however.
Fee and Peterson brought in a renter (he later became their brother-in-law) to make ends meet in Milton after the sale of their place on Cape Cod fell through. “I really don’t know how we did it, but somehow we managed not to lose our shirts,” Fee said. “The only way to build wealth in this country, really, for the average person is homeownership.”
“It really was a struggle,” Fox said. “We were definitely house poor for a long, long time, but ultimately, it really made the difference in terms of where we are years and years later and getting in on the ground floor. It really was the right decision.”
Why did buyers like Fee and Peterson take the plunge at such high interest rates in the 1980s? Like today, many didn’t. “The homeownership rate fell in the 1980s,” said Lawrence Yun, chief economist for the National Association of Realtors.
But Fee said people who took the plunge were afraid that rates — and home prices — were going to soar even higher because of inflation. “The interest rates were escalating at what almost seemed like weekly,” Fee said, “so, we got the house under contract and we locked in at a rate of 13 percent.” The rates did climb after that — a lot.
Fee and Peterson later refinanced their mortgage at a lower rate, which is what everyone interviewed for this story did to make their payments more reasonable.
Fast-forward to 2023, and the rates are about half, but buyers and sellers are sitting on the sidelines.
Yun said buyers will return when their income growth outpaces home price growth and mortgage rates ease.
“Most buyers understand that they can refinance to lower interest rates should this occur and, hence, would not have any regrets about not buying at a new, higher mortgage rate.”
‘We refer to those 10 years as the Ramen years.’
STEVE FOX South End resident who purchased a home in the 1980s