Creighton University economist Ernie Goss says the days of 2% or 3% interest rates on home mortages are over.
“We all have to get used to these higher rates. We had this long period, about 15 years of unbelievably low interest rates,” Goss said. “Well now they’re headed back to normal and all of us are like, ‘Wow, we can’t take this.’ Well, we took it before and we’ll take it again I’m afraid to say.”
The Federal Reserve and central banks in other countries cut interest rates to near zero in response to the economic crash that hit the global economy in 2008. Rates dropped again in 2020 to provide an economic boost during the pandemic. “The Fed had just gone all-in on lower rates trying to stimulate the economy and unfortunately now we’re going to have to get used to higher rates,” Goss said during an interview with Radio Iowa.
The 50-year average for interest rates on home mortgages is 7.7% and Goss said that compares to current rates which are at or just below 7%. Double-digit interest rates in the 1970s led to the Farm Crisis in the 1980s. While farm foreclosures are rising, Goss does not expect farm foreclosures to spike like they did four decades ago. “There is some good news here, well, semi-good that even with all the issues here, the farmer’s still in pretty good credit conditions,” Goss said. “They haven’t over-borrowed and the bankers haven’t over-lent.”
During the Farm Crisis, some farmers with adjustable rate mortgages saw interest rates climb to 24%. In just one year — 1983 — Iowa averaged about 500 public farm foreclosure auctions every month. Goss said one way to reduce current interest rates is for congress to make meaningful cuts in federal spending and pay down the national debt.