Cost of money much less today than during the Great Depression


(Above) U.S. National Archives photo showing unemployed people lining up at a Chicago soup kitchen in February 1931.

Any elderly American living today who lived through the Great Depression of the 1930s would blink wrinkled, cataract-filled eyes the way 2020 economists see the world.

30-Aug-20 ?? At the time, this writer’s parents drove miles to save pennies on the price of the streetcar. People rolled and kept the string of packaging from the butcher’s shop. If the string was too short to roll into a ball, they would put extracts into cigar boxes and recycle them.

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

Nothing was wasted, and that savings from the depression carried into WWII ?? with shortages and everything from gasoline and car tires to rationed meat and vegetables. Victory Gardens has sprouted in almost every vacant lot in Chicago.

Records from the former Federal Housing Finance Board show that long-term mortgage rates in the 1960s weren’t much higher than during the Great Depression. Five decades ago, between 1963 and 1965, you could get a 5.81-5.94% mortgage. Between 1971 and 1977, Illinois’ defunct Usury Act maintained rates between 7.6 and 9.0 percent.

In the early 1980s, runaway inflation sent mortgage rates skyrocketing to the moon. According to Freddie Mac, benchmark 30-year mortgage rates peaked at 18.45% in October 1981 during this Great Recession.

(Left) NASA photo of the first space shuttle launch on April 12, 1981.

Rates eventually fell below 10 percent in April 1986, then rebounded in the 9 to 10 percent range for the remainder of the 1980s. 21 years ago, in August 1999, when many millennial borrowers Today were in high school, lenders were quoting 8.15% on a 30 year fixed rate mortgage, so that was a good deal.

However, interest rates have started to fall gradually over the past decade. Mortgage rates hit what was then a low on November 21, 2012, when the 30-year average fixed mortgage lending was 3.31%, reported Freddie Mac.

Then came 2020 ?? the year of the pandemic. On July 16, mortgage interest rates fell to an all-time low of 2.98% nationwide, the lowest on Freddie Mac’s on record. Primary Mortgage Market Survey, which dates back to 1971.

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

United States Navy

?? Mortgage rates fell below three percent for the first time in 50 years, ?? noted Sam khater, Chief Economist of Freddie Mac. Since then, rates have remained below 3% for 30-year benchmark fixed home loans. On August 27, the rate was on average 2.91%, down from 2.99% a week earlier. A year ago, the 30-year fixed rate averaged 3.58%.

Freddie mac

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

To calm the economic flames in Chicago and across the country, the Federal Reserve has announced decisive new policy on how it will manage interest rates going forward. The Fed has said it plans to keep interest rates close to zero even if inflation rises above its 2% level.

This means that borrowing rates for mortgages, auto loans, and business loans are likely to remain very low for years to come.

Inflation is no longer a threat, says Fed Chairman

Jerome PowellFed Chairman said the policy change reflects the reality that high inflation ?? once the biggest threat to the economy ?? no longer appears to be a serious danger.

Photo by Andrea Hanks

Powell said inflation was hovering at an annual rate of less than 1%, well below his target of 2%. Since this target rate was officially adopted in 2012, the Fed has never systematically reached this level.

(Left) Jerome Powell speaks at the White House in 2017. Photo by Andrea Hanks.

At the end of 2019, the United States had about $ 17 trillion in debt, or about 80% of gross domestic product. At the end of June 2020, the debt stood at $ 20.53 trillion, or about 106% of GDP. This does not include the trillions more Uncle Sam owes in bonds held by Social Security and Medicare trust funds.

The loan is not finished. The Treasury is expected to borrow more than $ 1 trillion more by the end of the year, and that doesn’t include another stimulus package.

So if you are a home buyer looking for a mortgage that is priced under three percent, now is the time to buy.

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