Rates peaked in 1981 at 18.5%, but are your clients’ parents right?
When I saw new KPMG analysis published in Australia this week arguing that today's borrowers may actually be worse off than their parents were - despite the commonly held assumption that the high interest rates of the 1980s made that era the hardest time in living memory to buy a home - my first reaction was: yes, but does that hold in the US?
The Australian finding is based on measuring total interest payments as a share of household income over 40 years. The conclusion is that even though current rates are less than half what they were in 1989, prices have grown so far beyond incomes that the aggregate burden is higher today. The structural logic is sound. But America's rate history has a different shape from Australia's, and that shape could mean that the Aussie outcome isn’t true here.
US 30-year fixed rates did not peak in 1989. They peaked in October 1981 at 18.5%. By 1989 they had already fallen to around 10 to 11%. The parents sitting across the table from your clients bought their first home in the early 1980s and genuinely did face rates near or above 15%. That experience was real. But the house they bought at 15% cost around three times their household income. The house their kids are now trying to buy costs five times the national median — a record, confirmed by the Harvard Joint Center for Housing Studies in its State of the Nation's Housing 2025 report.
So the Australian argument holds in the US. It just needs a different starting point.
What Harvard found
The Harvard JCHS report is the most authoritative annual measure of US housing affordability, and the 2025 findings are stark.
Monthly mortgage payments on the median-priced home - assuming a 30-year loan with a 3.5% down payment - hit $2,570 in 2024. That figure is 40% higher than it was in 1990, adjusted for the same loan terms. Qualifying for that mortgage requires an annual income of at least $126,700. Only six million of the nation's nearly 46 million renters can meet that benchmark.
The affordability gap
US median home price as a multiple of median household income, 1970-2024
In 1970 a home cost 2.3 times the median household income — the most affordable point in the modern record. Today it costs 5.1 times. Parents who bought in the early 1980s bought near the historical midpoint. Their kids are buying at the all-time high.
Sources: National Association of Realtors; U.S. Census Bureau Current Population Survey; Best Interest Financial (Feb 2026); Housing Almanac (Apr 2026); Visual Capitalist / FRED (2025). Confirmed anchors: 1970 (2.3x), 1980 (3.65x), 1985 (3.5x), 2005 (4.7x), 2012 (3.5x), 2022 (5.83x), 2024 (5.1x). Intermediate years indicative.
The median price of an existing single-family home hit $412,500 in 2024 - five times median household income. Harvard senior research associate Daniel McCue called it "shocking" and noted it was "significantly above the price-to-income ratio of 3 that has traditionally been considered affordable."
Existing home sales dropped to a 30-year low of 4.06 million. The US homeownership rate fell in 2024 for the first time in eight years. The median age of a first-time homebuyer hit 38.
Three things the comparison omits
The early 1980s peak was real but brief. US 30-year fixed rates went from 18.5% in 1981 to around 9% by 1987. A buyer who locked in near the peak in 1981-82 saw rates fall substantially within a few years - and refinancing was the defining financial move of that decade. The pain was genuine; its duration was limited.
Prices have grown 60% since 2019 alone. The pandemic-era surge added a new layer to a structural affordability problem that had been building for decades. Harvard notes US home prices were 60% higher in early 2025 than in 2019. The JP Morgan Institute found that a mortgage equivalent to 40% of take-home pay in 2019 would require 58% of the same household's 2024 take-home pay, with prices and rates both moving against buyers simultaneously.
The 30-year fixed cuts both ways. America's 30-year fixed mortgage is unusual globally. It allowed buyers who locked in below 3% during 2020-21 to keep those rates. It also means today's buyers at 6.5-7% are committing to that rate for three decades on a loan against a $400,000-plus asset - structurally very different from the 1981 buyer's brief encounter with high rates on a house worth $80,000.
What this means in practice
When a client's parent says they survived 15% rates, the answer is not "actually it is harder for your kids." The answer is more specific: the rate was higher, briefly, in the early 1980s. The house cost three times income. By the time that generation's mortgage was a decade old, rates had halved and the asset had appreciated. Today's buyer is committing to 6.5% for 30 years on a house at five times income - with monthly payments that Harvard calculates are 40% above what the same loan would have cost in 1990 in real terms.
"This is significantly above the price-to-income ratio of 3 that has traditionally been considered affordable," McCue said of today's five-times-income figure.
So even though maybe we should humor the bank of mum and dad who may be providing the down payment – they probably didn’t have it any harder.
