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I know this sounds crazy. I was shocked by the results, too.

Everyone knows lower mortgage rates lower monthly mortgage payments but by how much? Do they lower monthly mortgage payments a lot or a little? I wanted to find out in dollars and cents.

Interest Rates

The first week of January 1990 the average 30-year fixed-rate mortgage interest rate was 9.8%. The first week of January 2020 it was 3.7%

If you took out a $100,000 mortgage at 9.8%, the monthly principal and interest (P&I) payment is $863 per month. At 3.7%, it’s $460 per month. 

Inflation Rates

But the U.S. dollar was worth a lot more in 1990. That is, $1.00 in January 1990 was equal to $2.02 in January 2020.

So, a $100,000 mortgage in 1990 would be equal to a $202,000 mortgage in 2020.

House Prices

But house prices have gone up a lot since 1990. According to the Case-Shiller Home Price Index, U.S. house prices in January 2020 are 177% higher than in January 1990.

The Numbers

  • So, nationwide, a house that cost $100,000 in January 1990 would cost $277,000 in January 2020.
  • But due to inflation that $277,000 is only worth $137,000 in 1990 dollars.
  • But the 30-year fixed-rate mortgage rate was 9.8% in January 1990 versus 3.7% in January 2020.
  • The principal and interest mortgage payment on $100,000 at 9.8% interest would be $863 per month. The principal and interest mortgage payment on $137,000 at 3.7% interest would be $631 per month.

Therefore, adjusting for inflation and mortgage rates, the monthly principal and interest mortgage payment in 2020 is only 73% of the payment in 1990 for the equivalent size and quality house in the U.S.


Finally, the conclusion!

Despite the Corona Recession, I think it’s unlikely U.S. house prices will fall in 2020, and if they do, it won’t be by much.

Adjusted for inflation and interest rates, house prices aren’t high in most cities, and are nothing like in 1990 or 2006.

Okay, I was shocked by the results, too!

Prices could fall in 2021, if we’re still in a recession. More likely, U.S. house prices would be more or less flat.

What do you think? What am I missing? Leave a comment.


  • Nationally, the Savings and Loan real estate bubble peaked in 1990. It wasn’t a typical year… but 1990 is a nice round number.
  • Corelogic’s Case-Shiller Home Price Index measures constant quality houses, meaning they measure how much the prices of individual houses increase over time. Even though the average house is larger in 2020 than in 1990, that’s not captured in the Case-Shiller Index.
  • I used the Consumer Price Index (CPI-U) to measure inflation. If I had used the Federal Reserve’s preferred measure of inflation, Personal Consumption Expenditures, the 2020 real monthly P&I mortgage payment would have been much closer to the 1990 payment, although still below the 1990 payment.
  • Lower mortgage interest rates slowly lead to higher house prices over 2 to 3 years. This is pretty standard thinking among economists. Lower mortgage rates tend to benefit current homeowners and first-time homebuyers who buy when mortgage rates first fall and before the lower rates become monetized into higher house prices.
  • Higher inflation has the effect of lowering your future inflation-adjusted mortgage payments. If low mortgage rates foreshadow low inflation, that means your real mortgage payments will stay higher longer. Your mortgage payments are lower in the earlier years of the mortgage but later on your real mortgage payments may be higher than in a higher inflation scenario. Combined with lower rates leading to higher house prices, lower rates and lower inflation can paradoxically lead to higher real debt that doesn’t deteriorate as fast with time.