Arrival of First Long-term Mortgages Helped Fueled Baby Boom

Among the many explanations for the baby boom are rising incomes in the post-war economy, modern appliances that made childrearing more manageable, and lots of women who were no longer working in the factories.

But a new study makes a compelling case for another cause: FHA and VA mortgages that made borrowing money for a house much more affordable for young couples.

These mortgages changed homeownership from a privilege to a viable option for working-class and middle-class couples who wanted to raise a family. Federally insured FHA and VHA loans reduced the upfront cost of buying a house.

The mortgage programs drove the births of an additional 3 million babies between 1935 and 1957, researchers from the Federal Reserve Board and the University of Maryland found. They estimate these births were responsible for about 10 percent of the excess births that formed the baby boom. The boomer wave officially started in 1946 but the analysis dated back to the creation of the Federal Housing Administration in 1934.

Prior to FHA mortgages, downpayments could be almost half of a home’s purchase price. After a few years of paying interest, the buyer owed the full remaining balance on the loan. With FHA’s creation, the modern, long-term fixed-rate mortgage was born. FHA loans, backed by insurance, required only 20 percent down and would be amortized – and eventually paid off – over 20 to 30 years.

In 1944, the loan program for veterans followed a similar model. The VA offered even lower fixed interest rates than the FHA and eliminated downpayments entirely. One group was barred from FHA and VA loans, however: Black Americans, including men who served in World War II. The government and banks viewed Black neighborhoods as too risky for the insured loans.

Nevertheless, FHA and VA loans were wildly popular. Some 10 million of the mortgages were issued between 1935 and 1957, and the U.S. homeownership rate surged from 45 percent to 65 percent. “America was transformed from a nation of urban renters to suburban homeowners,” the researchers concluded.

By 1960, they noted, births in the United States had begun to decline. But the cause of this “baby bust” was probably less about finance and more about an important medical advance. “A critical factor,” they said, “almost surely [was] the advent and spread of modern contraceptive technology.” 

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