The Influence of Inflation on Mortgage Rates

If you read the headlines concerning inflation or mortgage rates, you might notice something about the recent Federal Reserve (the Fed) decision. But what does this mean for you, the housing market, and your home-buying plans? Here's what you should know.

Inflation and the Housing Market

While the Fed’s working hard to lower inflation, the latest data shows that, while the number has improved some, the inflation rate is still higher than the target (2%). That played a role in the Fed's decision to raise the Federal Funds Rate last week. As Bankrate explains:

“Keeping its inflation-fighting streak alive, the Federal Reserve has raised interest rates for the 10th time in 10 meetings . . . The hikes aimed to cool an economy that was on fire after rebounding from the coronavirus recession of 2020.” 

While the Fed's activities may not directly influence mortgage rates, their decisions do have an impact and contributed to the housing market's purposeful cooling last year. 

How This Impacts You 

During periods of strong inflation, your daily expenses rise. That means you've probably felt the pinch at the gas pump and the supermarket. The Fed is actively attempting to reduce inflation by hiking the Federal Funds Rate. If the Fed succeeds, it may eventually result in lower mortgage rates and better homebuying affordability for you. Because mortgage rates tend to be high when inflation is high. However, when inflation falls, mortgage rates are expected to decrease.

Where Experts Think Mortgage Rates and Inflation Will Go from Here

Moving forward, both inflation and mortgage rates will continue to impact the housing market. And as Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:

“Mortgage rates are likely to descend lower later in the year as the consumer price inflation calms down . . .” 

Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), explains: 

“We continue to expect that mortgage rates will drift down over the course of the year as the economy slows . . .”

While there is no way to predict where mortgage rates will go from here, analysts believe they will fall this year if inflation falls as well. Connect with a professional real estate advisor to stay up to date on the newest trends. They stay up to date on current events and can assist you in comprehending what the experts are predicting and how it may affect your homeownership goals.

Bottom Line

Don't let the recent Fed decision's headlines mislead you. What happens with inflation will determine where mortgage rates go from here. If inflation falls, mortgage rates should fall as well. Let's get together so you can get expert advice on home market changes and what they mean for you.