Understand How Inflation Affects Mortgage Rates📈

 Knowing how inflation affects mortgage rates can empower you to time your real estate decisions wisely. Stay informed, and you’re already ahead of the game!

Understanging How Inflation Affects Mortgage Rates in Metro Detroit MI | Team Tag It Sold

How Does Inflation Affect Mortgage Rates

When you come across news discussing the housing market, it’s common to encounter mentions of the Federal Reserve’s recent decisions. But what does all of this mean for you, especially if you’re considering buying a home? Let’s break it down. The Federal Reserve, often referred to as the Fed, has a primary goal of curbing inflation. Despite the fact that inflation has shown a year-long trend of cooling off (as seen in the graph below), the latest data indicates that it remains above the Fed’s target of 2%:

In simple terms, the Fed’s actions have a ripple effect on the economy and, in turn, the housing market. Understanding how these decisions influence your home buying journey is crucial. We’re here to provide you with insights and guidance, ensuring you make informed decisions every step of the way. So, if you’re a prospective home buyer or seller, stay tuned for more valuable information that will help you navigate the ever-changing real estate landscape.

Inflation Graph Since Jan. 2020

The Experts Weigh  In…

While you may have been hoping the Fed would stop their hikes since they’re making progress on their goal of bringing down inflation, they don’t want to stop too soon, and risk inflation climbing back up as a result. Because of this, the Fed decided to increase the Federal Funds Rate again last week. 

As Jerome Powell, Chairman of the Fed, says:

We remain committed to bringing inflation back to our 2 percent goal and to keeping longer-term inflation expectations well anchored.”

Greg McBride, Senior VP, and Chief Financial Analyst at Bankrateexplains 

Inflation remains stubbornly high. The economy has been remarkably resilient, the labor market is still robust, but that may be contributing to the stubbornly high inflation. So, Fed has to pump the brakes a bit more.”

Even though a Federal Fund Rate hike by the Fed doesn’t directly dictate what happens with mortgage rates, it does have an impact.

As a recent article from Fortune says:

“The federal funds rate is an interest rate that banks charge other banks when they lend one another money . . . When inflation is running high, the Fed will increase rates to increase the cost of borrowing and slow down the economy. When it’s too low, they’ll lower rates to stimulate the economy and get things moving again.”

In a nutshell, when inflation is high, mortgage rates tend to follow suit, making homeownership less affordable. However, there’s a hopeful twist – if the Federal Reserve successfully lowers inflation, it could lead to more budget-friendly mortgage rates, making your homeownership dream a reality.

Let’s take a look at this graph:

Inflation Affects Mortgage Rate Graph

The graph illustrates that as inflation (blue trend line) gradually decreases, historical trends show that mortgage rates (green trend line) often do the same. This trend suggests a promising future for prospective homebuyers.

So, what’s in it for you? McBride shares his perspective on future mortgage rates:

“In this changing economic landscape, we stand on the brink of a potential opportunity for homebuyers. As inflation eases, we anticipate mortgage rates will follow suit, potentially making homeownership more accessible than ever.”

Whether you’re already on the path to homeownership or just considering it, these economic shifts could be in your favor. Lower mortgage rates could mean substantial savings and increased affordability, bringing you closer to your dream home.

Stay tuned as we explore how these economic factors could shape your real estate journey. Your dream of buying or selling a home may be closer than you think.

Closing Thoughts 

The dance between mortgage rates and inflation can feel like a mystery, but don’t worry, you’re not alone. When inflation eases up, mortgage rates usually follow suit. This can open doors for both home buyers and sellers, turning dreams into addresses. Reach out for tailored advice to navigate these market shifts. Together, we’ll make sense of what these changes mean for your unique journey in the world of real estate.

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Pam Sawyyer @ Metro Detroit Home Experts
Simplifying Real Estate in Michigan |Team Tag It Sold

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As we move forward, it’s been challenging as we navigate through all the changes. Putting your dream of a new home on HOLD shouldn’t be one of them. Now more than ever, knowledge will help you set up your Negotiation Power. Check out Categories for additional updates regarding the Housing Market. | 

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