How Inflation Affects Mortgage Rates

When you read the news about houses, you might find something about the Federal Reserve (the Fed)  choice. This can impact you if you want to buy a home. The Federal Reserve (the Fed)  wants to lower inflation. Even though inflation has gone down for a year, it’s still higher than what the Fed wants, which is 2%.

You might have hoped that the Federal Reserve (the Fed)  would stop raising their rates because they’re making progress in reducing inflation. But they don’t want to stop too soon and risk inflation going up again. So, they decided to raise the Federal Funds Rate again recently. The Federal Reserve (the Fed) ‘s leader, Jerome Powell, says they want to bring inflation down to 2% and keep it there.

A person named Greg McBride, who knows a lot about finances, explains why the Federal Reserve (the Fed)  made this choice. He says that inflation is still too high, even though the economy is strong. The job market is good, but that might be making inflation stay high. So, the Federal Reserve (the Fed) is trying to slow things down a bit.

When the Federal Reserve (the Fed)  raises the Federal Funds Rate, it doesn’t directly control mortgage rates, but it does have an impact. An article from Fortune explains this.

The Federal Funds Rate is a kind of interest rate that banks use when they lend money to each other. If inflation is high, the Federal Reserve (the Fed)  raises this rate to make borrowing money more expensive. This helps slow down the economy.

When inflation is too low, they lower this rate to make borrowing cheaper. This stimulates the economy and gets things moving again.

How All of This Affects You 

When prices go up (inflation is high), it becomes more expensive to borrow money for a house (mortgage rates increase). it means that inflation affect mortgage rates. If the Federal Reserve (the Fed)  reduces inflation, it could lower mortgage rates and make homes more affordable. This could make it easier for you to buy a house.

This picture helps explain this idea. When prices go down (inflation decreases), home loan costs (mortgage rates) also tend to decrease.

Based on the data, the cost of items (inflation, indicated by the blue line) is gradually decreasing. Looking at past events, home loan costs (mortgage rates) typically decrease along with the green line.

A person named McBride talks about what might happen with mortgage rates in the future. He says that as the pressure to increase prices decreases, the cost of home loans may decrease steadily throughout the year. This could happen especially if the economy and job opportunities slow down a bit.

Bottom Line

What goes on with mortgage rates is linked to inflation. If inflation gets lower, the cost of getting a home loan should also go down. We should have a conversation to get advice from experts about how changes in the housing market might affect you. Find out why Kaya Homes is the leader in Long Island Real Estate and are your go-to realtor in the Lynbrook, Oceanside, Malverne, Hewlett, Valley Stream, East Rockaway, Woodmere, Cedarhurst, Baldwin, North Woodmere, Woodsburgh, Hewlett Neck Hewlett Harbor, Bellmore,Wantagh,Merrick and Freeport area.

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Thu, 10 Aug 2023 23:13:59 +0000

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