High mortgage rates recall an era of … high mortgage rates

The rising bond yields we’ve seen this week have sent mortgage rates soaring. The average 30-year fixed-rate mortgage in the U.S. climbed above 7%, hitting its highest level in more than 20 years.

The higher borrowing costs are adding more pain to what is already a uniquely painful housing market. But when we talk about mortgage rates above 7%, it’s worth noting that we have experienced this before.

Things were different back in the early 2000s. Sure, the low-rise jeans and platform shoes look horrifyingly similar. But mortgage rates? Those hit different.

“If you look at that time, sort of in the 6s was pretty normal, so 7 was not a big deal,” said economist Richard Green at the University of Southern California.

Green bought a house in the ’90s at 8% interest and refinanced several years later at a low, low 6.5%. “I felt great about it,” he said. “Yeah, it was awesome.”

Rates were still on the downswing from what had happened more than a decade earlier.

“The shock in the 1980s was enormous,” said economist Eugene White at Rutgers University, referring to the Volcker shock — when Federal Reserve Chair Paul Volcker drastically hiked interest rates to quell inflation, sending mortgage rates to an all-time high of more than 18% in 1981.

“And it took a long time for them to come down,” White said.

All of which is not to scoff at the very real challenges of today’s housing market, said Jenny Schuetz, a senior fellow at the Brookings Institution.

“People are having a hard time both on the price of the mortgage and on the price of the house, and that’s a pretty unusual situation historically,” she said.

Couple the previous era of low interest rates with a decade-plus of sluggish construction, and housing prices have far outpaced wages, Schuetz said — bringing angst to many potential homebuyers.