30-Aug-20 – Back then, this writer’s parents would walk miles to save pennies of streetcar fare. People would roll up and save string from butcher shop packages. If the string was too short to roll into a ball, they would put snippets in cigar boxes and recycle them.

Interest rates on five-year balloon mortgages were only five percent in the early 1930s, but with millions of people out of work, tens of thousands of families lost their homes to foreclosure. One of those homes was a Rogers Park brick bungalow owned by my father and mother.

Nothing was wasted, and that Depression thrift carried into World War II – with shortages and everything from gasoline and auto tires to meat and vegetables rationed. Victory Gardens sprouted in nearly every vacant lot in Chicago.

Archives of the now-defunct Federal Housing Finance Board show long-term mortgage rates in the 1960s were not much higher than the Great Depression era. Five decades ago, between 1963 and 1965, you could get a mortgage at 5.81 to 5.94 percent. Between 1971 and 1977, the now-defunct Illinois Usury Law held rates in the 7.6-to-9.0 percent range.

In the early 1980s, runaway inflation caused home loan rates to skyrocket over the moon. According to Freddie Mac, benchmark 30-year mortgage rates peaked at a jaw-dropping 18.45 percent in October 1981 during that Great Recession.

(Left) NASA photo of the first Space Shuttle launch on April 12, 1981.

Rates finally fell below 10 percent in April 1986 and then bounced in the 9-to-10 percent range during the balance of the 1980s. Twenty-one years ago in August 1999, when many of today’s Millennial borrowers were in grammar school, lenders were quoting 8.15 percent on a 30-year fixed-rate mortgage, so that was a good deal.

However, interest rates began falling gradually over the last decade. Mortgage rates hit what was then a rock bottom on November 21, 2012, when the 30-year fixed mortgage average was 3.31 percent, Freddie Mac reported.

Then came 2020 – the Year of the Pandemic. On July 16, home loan interest rates plummeted to a historic record low of 2.98 percent nationwide, the lowest ever recorded by Freddie Mac’s Primary Mortgage Market Survey, which dates back to 1971.

(Right) A surgical nurse in the intensive care unit aboard the hospital ship USNS Comfort on April 23, 2020. Photo by U.S. Navy Mass Communication Specialist 2nd Class Sara Eshleman.

“Mortgage rates fell below three percent for the first time in 50 years,” said Sam Khater, Freddie Mac’s Chief Economist. Since then, rates have held below three percent for benchmark 30-year fixed home loans. On August 27, the rate averaged 2.91 percent, down from 2.99 percent a week earlier. A year ago, the 30-year fixed rate averaged 3.58 percent.

With millions of Americans out of work, Chicago neighborhood businesses failing, rioters looting, and racial protests in the streets, 2020 makes the Great Depression years look like an ice cream party.

To cool the economic flames in Chicago and across the nation, the Federal Reserve announced a watershed new policy on how it will manage interest rates in the future. The Fed said it plans to keep interest rates near zero even if inflation exceeds its two percent level.

What this means is borrowing rates for home mortgages, auto loans, and business loans likely will remain ultra-low for years to come.

Inflation no longer a threat, says Fed chairman

Jerome Powell, chairman of the Fed, said the change in policy reflects the reality that high inflation – once the biggest threat to the economy – no longer appears to be a serious danger.

Powell said inflation is hovering at a sub-1 percent annual rate, well below its 2 percent target. Since that target rate was officially adopted in 2012, the Fed never has consistently hit that level. (Left) Jerome Powell speaks at The White House in 2017. Photo by Andrea Hanks.

At the end of 2019, the United States was about $17 trillion in debt, roughly 80 percent of the Gross Domestic Product. By the end of June 2020, the debt stood at $20.53 trillion, roughly 106 percent of GDP. This does not include the trillions more Uncle Sam owes itself in bonds held by the Social Security and Medicare trust funds.

The borrowing is not over. The Treasury is expected to borrow more than $1 trillion more by the end of the year, and that does not include another stimulus package.

So, if you are a home purchaser shopping for a mortgage priced below three percent, now is the time to buy.