1987: When mortgage rates last soared this much

“Memory Lane” takes a stroll through financial history because the economy has a funny habit of repeating itself.

Buzz: Mortgage rates suffered their largest one-week jump since 1987.

Source: The average 30-year fixed-rate mortgage from a survey by Freddie Mac.

Numbers: Rates soared to 5.78% on June 16, up 0.55 percentage points from 5.23% seven days earlier. In April 1987, rates skyrocketed 0.84 points in a week, jumping to 10.27% from 9.43%.

How long ago?

Let’s jar your memory …

1987 news: The Iran-Contra scandal gripped U.S. politics, Iraqi missiles struck the USS Stark amid the Iraq-Iran war, and televangelist Jim Bakker and US Sen. Gary Hart are both caught in infidelity scandals. Locally, there was the Rodney King beating and the Whittier Narrows earthquake rattled the San Gabriel Valley.

1987 culture: Beverly Hills Cop II was tops at the box office and “Livin’ on a Prayer” by Bon Jovi was No. 1 on the charts. The first Panera Bread opened. The Los Angeles Lakers won the NBA championship.

The backstory

In 1986, a massive federal tax card pushed by then-President Ronald Reagan put lots of cash in the checkbooks of Americans.

At the same time, the Fed had been undo its high-rate policies that knocked down the inflation rate — and stalled the economy.

The Fed Funds rate the central bank controls had fallen under 6% in the fall of 1986 after approaching 20% earlier in the decade. It was a 10-year low for this key rate.

Mortgage rates acted as you’d expect, falling to 9% in February 1987 — the lowest in a decade. That certainly explains the 7% price gains for California homes in 1986.

And by April 1987, the broad economy had recovered from the pain of the early 1980s. U.S. unemployment fell to 6.3%, the lowest in seven years.

The stock market also noticed, surging 24% in the year …read more

Source:: Los Angeles Daily News

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