When home mortgage rates began heading toward 6% this year, the phrase “high interest rates” began circulating among buyers and the media.
For those with long memories, 6% seems like a steal. Back in the 1980s, a 30-year fixed FHA home loan ran as high as 17.5% to 18%. Despite those rates, homes still sold.
However, those calling today’s rates high are correct, according to Daryl Fairweather, chief economist with the national brokerage firm Redfin.
“Prices are much higher now. So if you’re just looking at the median monthly payment, it is higher now than it was back in the day when interest rates were higher, because home prices have gone up so much,” she said.
Nationally, the median price of a home in 1980 was listed at $47,200. In July, the national median price of a home was $403,800, according to the National Association of Realtors.
Adjusted for inflation, that $47,200 home would be $167,878, according to the U.S. Bureau of Labor Statistics.
The Northeast Florida Association of Realtors says the median price of a home in the six-county region of Baker, Clay, Duval, Nassau, Putnam and St. Johns counties is $400,000.
St. Johns comes in at $559,325 as the high and Putnam the low at $195,000.
Realtors who sold during the 1980s used a variety of financing techniques to work around the high interest rates. The 17.5% number was staggering even for those brokering a sale.
Watson Realty founder Bill Watson has been in the real estate business since the 1960s. He recalled an associate coming to him to quit the business. In good conscience, she couldn’t saddle a young couple with a fixed 17.5% interest rate.
“It’s not a life sentence. You can sign at 17.5%, that’s what FHA was at that time, and when interest rates come down you can refinance,” he said.
Watson is a believer in building wealth through real estate because the value of a home continues to rise over the years.
Watson recalled another associate who illustrated the point.
“When he got out of college, he bought a house. His buddy bought a Porsche. The house went up in value and the Porsche went down in value. That was an individual choice.”
Ben Bates, owner of Coldwell Banker Ben Baker Inc. in Palatka, has been in the business for 47 years. He used different financing methods to continue to sell houses in his area.
In the 1980s, a house sold for $40,000 to $50,000 on average, he said.
Working with the local First Federal Savings and Loan, buyers could assume the mortgage rate on a house from the owner and finance the remaining portion needed to buy the home at a lower rate of between 10% and 12%. It still was high, but more workable than 17.5%.
The state had a bond program for would-be homeowners. Realtors could buy $1 million of bond money for about $10,000. Bates bought a couple million dollars of the bonds. With this money, Realtors helped finance purchases. Both the state and Realtors were paid back through closing costs.
Adjustable rate mortgages then came into vogue, Bates remembered. The rate is fixed at lower than prime for two to five years, but then could increase, depending on the financing agreement, between 2 to 2.5 percentage points every couple of years after that. The increases were tied to the prime rate.
“It got people into a house at a lower rate. But if the rates were to go up there were caps,” he said.
Realtors say those mortgages are around today and can be advantageous for those who know that they only will be in the house for a few years and plan to sell before the fixed rate expires.
