How high were rates in the last 45 years? Are they really high in 2024?

Loan interest rates have seen a historic surge in recent months. The hike was particularly brutal to combat inflation. But are these rates that high?

If we take historical data, we realize that at 4% in February 2024, rates are far from their peak. This article provides a retrospective look at the significant developments in real estate interest rates since the 1980s, as well as their effects on the real estate market.

Taking a step back and analyzing the historical evolution of rates, we can see that interest rates are not that high in 2024.

Excessive interest rates in the 1980s

In the early 1980s, real estate interest rates were particularly high, often exceeding the 10% mark. This situation is particularly explained by the fight against inflation and the implementation of tight monetary policies.

The policy to fight inflation bore fruit throughout the 1980s, thus allowing lending rates to stabilize.

Banks then reviewed their business policy, also leveraged IT tools to manage risks and reduce their margins.

A decline in interest rates in the late 2000s

A steady decline in interest rates in the early 2000s was supported by the monetary policy of the European Central Bank (ECB). The advent of the euro favors maintaining relatively low rates for this new millennium.

The introduction of the euro in 1999 led to the harmonization of monetary policies and reduced exchange rate risks.

• Banking competition: A fall in rates in the financial markets leads to a reduction in interest rates on mortgage loans made for individuals. At the same time, competition among banks is intensifying.
• Progressive Computerization: On a technical level, home computing continues to grow due to the widespread use of ADSL and personal computers.

The Subprime Crisis: Impact on Interest Rates

Due to their exposure to global financial products linked to the subprime crisis, French banks were directly affected by this economic crisis.

To counter their losses, they increased their capital reserves by improving their margins due to higher interest rates.

In late 2009 the rate peaked at 5% before stabilizing around 4%.

Historically low rate of 1%

The ECB has stepped up its monetary policy to support the euro zone economy, especially coming to the aid of those in major trouble (Greece, Spain and Ireland). This has enabled many people to access properties, invest and renegotiate their loans.

Risk of inflation and rising rates

Faced with the risk of inflation, particularly due to rising energy prices, banks have passed on key rate and inflation hikes to maintain their margins.

Furthermore, they stop fighting to lend as much as possible, as deposits with the ECB become attractive again. Conflicts and supply difficulties add uncertainty to these increases in rates that are difficult to avoid.

A sudden and brutal increase

From 2021, the ECB has made it its mission to fight inflation. With the aim of reducing inflation to 2%, the ECB raised its key rate sharply and rapidly, causing an earthquake in the credit market as well as the real estate market.

But in early 2024, the clearing comes. Rates are stabilizing or falling again for some files offering new prospects for the coming months.

Taking a step back and analyzing the historical evolution of rates, we can see that interest rates are not that high in 2024.