While researching housing price trends, I stumbled across this graph which plots the year over year change in average real mortage rate against time:

average real mortgage rates 1971 to 2015

Two regions interest me: the approximate period 1973-1974 where change went negative, and 1983-1984 where change skyrocketed up to about 12% change.

What events during this period caused rates to change so wildly year-to-year? Can someone provide historical context to help me understand what mortgage rates were doing in this time?

  • I think you need to give more information about what this chart is even showing. So these are "real" (inflation adjusted) year over year changes to mortgage rates?
    – quid
    Dec 2 '16 at 1:55
  • @quid Yes, that's my understanding of the chart. I tried replicating the chart on FRED, without luck. Also, just added link to page with source material.
    – bishop
    Dec 2 '16 at 3:16
  • 1
    Chart doesn't seem to reflect the mortgage rate crash during the recent recession; there should be a big negative delta as rates dropped from 6% to 3%. Makes me skeptical about the whole chart...
    – keshlam
    Dec 2 '16 at 4:31

1973 was the first year of the oil crisis. Inflation increased radically, so inflation adjusted rates went negative. Mortgage rates adjusted once they realized that the new inflation wasn't a temporary change.

The early 1980s were when the Federal Reserve increased interest rates to end the stagflation of the 1970s. The interest rate increase pushed mortgage rates up. The inflation decrease stopped hiding that increase. Then afterwards, interest rates went down. So did mortgage rates.

You didn't ask about the 2007-2010 period, but a commenter did. Note again that these are inflation adjusted rates. So it doesn't show the 6% rate. The inflation adjusted rate was lower. It dropped a couple percentage points. Then there was the 2008 deflation. That made inflation-adjusted rates jump briefly. Then they went back down as inflation went positive again.

Inflation adjusting these kinds of numbers can be confusing. Inflation changes can exacerbate or hide interest rate changes. The nominal numbers might be easier to understand in this kind of graph. Sometimes, it's the inflation rate that is causing the graph to change rather than the mortgage rates.


The caption at the source page says it's inflation adjusted mortgage rates.

The two periods in question were ones where the inflation rate changed abruptly. The mid '70s saw a huge spike in inflation, while the mid 80s saw it come crashing down. The events you're asking about would fit with changes in mortgage rates lagging changes in inflation by a significant amount.

Inflation adjusted mortgage rates going negative in the mid 70's would fit with inflation going up faster than mortgage rates, the surge in the mid-80s fits with mortgage rates staying high for a few years after inflation plunged.

You can see that happening comparing inflation rates and non-inflation adjusted mortgage rates in the two charts below.


enter image description here

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