Warning: Undefined variable $custom_content in /home4/comcompare/public_html/mortgagenews/wp-content/plugins/code-snippets/php/snippet-ops.php(582) : eval()'d code on line 7
Last updated on December 26th, 2022 at 09:35 pm
According to the U.S. Bureau of Labor Statistics, last month in the United States, the average rate of a 30-year mortgage costs a bit more than 3 % because the rate of inflation jumped suddenly to 4.2 %.
Since August 1980, this is the first time that American mortgage rates were colder than the inflation rates.
It came just before the Federal Reserve entered on an aggressive strategy to mellow down the hyperinflation, which left a black hole of 15 % federal funds rate during the final words of the 39th president’s administration.
Though mortgage rates are not determined by the rate of inflation, they are correlated.
And it’s predictable that a rise in consumer price would partner with a rise in mortgage rates, which reached record lows in January.
Many housing economists feel that the jump in inflation will not stay for long but a normal correction following the sharp decline in spending during the pandemic period. So the inflation threat seems modest for now
The chief economist at Haus.com. Ralph McLaughlin said, that the 30-year mortgage rate and inflation rate are in tandem at the moment when we are coming out of a recession.
He added just because of the severe deflation we had in 2020 the inflation looks quite higher.
If the consumer prices keep rising sharply then inflation will affect mortgage rates.
The chief economist at Point Loma Nazarene University, Lynn Reaser said that Federal Reserve believes that the surge in prices is not permanent and price increases will subside when the supply catches up with demand.
That is why even after the federal government announced the highest pace of inflation in years the mortgage rates did not move upward sharply.
Greg McBride, Bankrate’s chief financial analyst, said that the high inflation rate phenomenon will persist for two to three months because of the declining price levels in 2020 and rush in the economic activity now.
In the U.S. and around the globe, prices could continue to rise because government stimulus helped consumers with money in their pockets.
As prices of homes and stocks have taken off leaving the rich consumers richer. And the costs of raw materials like lumber and steel to shoot up too.
Neither is Todd Metcalfe, the economist at Moody’s Analytics said that the inflation is expected to be rising it is expected to drop below 3% in the later part of 2021 and will continue to drop till it reaches 2% in the next couple of years.
According to the National Association of Realtors, from March 2020 to March 2021, the median price of home resales climbed a record 17% but the home prices are not a direct reflection of the consumer price index.
Except for in 1991 when the rate reached 4.2%, inflation hasn’t threatened the U.S. economy for some time.
After that inflation has averaged just 2.3%, says the World Bank data.
The Federal Reserve has an inflation target of 2% and the average inflation data is within the line.
There were predictions that like during the Great Recession inflation would return, but the inflation remained in check, even when the U.S. government had introduced stimulus packages, and the Fed was holding up the mortgage market.
Generally, real estate is seen as a shield against inflation.
Though inflation isn’t a long-term problem, it is currently showing that mortgage rates are going to keep climbing.
Reference Source: Bankrate
