The Connection Between Mortgage Rates And Inflation

Mortgage Rates and Inflation: Past, Present, and the Future

If you want to buy a house this year, you’re probably keeping a close eye on mortgage rates. Because mortgage rates influence what you can afford when you take out a home loan – and affordability is such a big concern right now – it’s a good time to look at where mortgage rates have been historically compared to where they are currently. Aside from that, understanding their link with inflation might provide insight into where mortgage rates may go in the near future.

 

 

Mortgage Rates In The Past

Since April 1971, Freddie Mac has been tracking the 30-year fixed mortgage rate. They publish the findings of their Primary Mortgage Market Survey every week, which averages mortgage application data from lenders across the country (see graph below):

Mortgage rates have risen dramatically since the beginning of last year, as shown on the right side of the graph. Even with that increase, today’s rates are still lower than the 52-year average. While that historical perspective is useful, purchasers have become accustomed to mortgage rates ranging between 3% and 5%, which has been the case for the past 15 years.

This is significant because it explains why the recent increase in rates may have you feeling sticker shock despite the fact that they are close to their long-term average. While many buyers have adjusted to higher rates over the last year, a somewhat lower mortgage rate would be appreciated amongst buyers. In order to establish whether it is a feasible prospect, inflation must be considered.

Where Might Mortgage Interest Rates Go in the Future?

 Since early 2022, the Federal Reserve has been working hard to reduce inflation. This is crucial since there has historically been a link between inflation and mortgage rates (see graph below):

This graph depicts a very consistent relationship between inflation and mortgage rates. Looking at the left side of the graph, you can see that if inflation changes significantly (shown in blue), mortgage rates follow suit quickly (shown in green).

The circled area on the graph represents the most recent surge in inflation, with mortgage rates close behind. While inflation has slowed slightly this year, mortgage rates have yet to follow suit.

That is, if history is any indicator, the market is expecting mortgage rates to follow inflation and fall. It is impossible to anticipate where mortgage rates will go with certainty, but with inflation decreasing, mortgage rates falling in the near future would fit a well-established trend.

Summing It Up

It’s useful to look at where mortgage rates have been in the past to get a sense of where they might go in the future. There is a clear relationship between inflation and mortgage rates, and if that historical pattern remains true, the recent decrease in inflation may be excellent news for mortgage rates and your homeownership objectives in the future. If you are looking to buy or sell a home in Cobb County or the Metro Atlanta area, just get in touch! We’d be more than happy to answer any of your questions! You can reach us at (404) 410-6465 or visit Complete Realty Team and get in touch by email. Until next time!

 

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