Understanding Inflation & Mortgage Rates Better

Inflation and mortgage rates are two of the biggest problems customers confront now, if you follow the housing industry. Let's examine each one individually.

Inflation and the Housing Market

The level of inflation this year was the highest in forty years. You most likely felt the squeeze at the petrol station and the grocery shop if you were a typical consumer. It might have even affected your capacity to save up for a downpayment.

Despite the Federal Reserve's best efforts to contain inflation, the numbers for August indicate that it was still higher than anticipated. The stock market was deeply affected by this, and discussions of a recession escalated. Additionally, it was a factor in the Federal Reserve's previous week decision to increase the Federal Funds Rate. As per Bankrate:

“. . . the Fed has raised rates again, announcing yet another three-quarter-point hike on September 21 . . . The hikes are designed to cool an economy that has been on fire. . .”

Although their choices haven't directly affected the movement of mortgage rates, they have contributed to effect the housing market's deliberate cooling off. A recent article from Fortune explains:

“As the Federal Reserve moved into inflation-fighting mode, financial markets quickly put upward pressure on mortgage rates. Those elevated mortgage rates . . . coupled with sky-high home prices, threw cold water onto the housing boom.”

The Impact on Rising Mortgage Rates

Over the past few months, mortgage rates have fluctuated in light of growing economic pressures. Most recently, the average 30-year fixed mortgage rate according to Freddie Mac ticked above 6% for the first time in well over a decade (see graph below):

The significant decline in buyer demand in recent months is mostly attributable to this year's hikes in mortgage rates. Basically, the cost of purchasing a home increased along with rates (and housing prices). Home sales slowed as a consequence, and the number of available properties increased as a result. This put pressure on affordability and priced some purchasers out of the market.

Where Experts Say Rates and Inflation Will Go from Here

Moving forward, both of these factors will continue to impact the housing market. A recent article from CNET puts the relationship between inflation and mortgage rates in simple terms:

“As a general rule, when inflation is low, mortgage rates tend to be lower. When inflation is high, rates tend to be higher.”

Sam Khater, Chief Economist at Freddie Mac, has this to say about where rates may go from here:

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth. The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, . . .”

Even while it's impossible to predict where mortgage rates will go from here with any degree of certainty, there is something you can do to keep informed: get in touch with a credible real estate expert. They keep an eye on current events and aid you in comprehending what the experts are predicting. They can provide you the strongest guidance imaginable.

Bottom Line

Housing has clearly been impacted by rising mortgage rates and inflation. Let's connect for knowledgeable analysis of the most recent home market developments and what they signify for you.