This year, inflation reached a high not seen in forty years. The average consumer felt
the pinch at the gas pump and in the grocery store. It has also impacted the ability
of some buyers to save money to buy a home.
When the inflation rate was higher than expected in late summer, concerns about
recession were fueled, prompting the Federal Reserve’s decision to raise the Federal
Funds Rate in late September.
Fortune magazine 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 skyhigh home prices, threw cold water onto the housing boom.”
The Rise of Mortgage Rates
In light of growing economic pressures, the average 30-year fixed rate mortgage
recently surpassed 6% for the first time in well over a decade.
The mortgage rate increases this year are the big reason buyer demand has pulled
back in recent months. As rates rose, so did the cost of buying a home and some
buyers were priced out of the market.
The relationship between inflation and mortgage rates is simple.
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, commented:
“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…”
Rising inflation and higher mortgage rates have had a clear impact on housing.
Contact me for insights on the latest trends in the housing market and what they
mean for you.