If you're keeping up with today's housing market, you're aware that inflation and mortgage rates are two of the most pressing concerns for consumers. Let's take a look at each one individually.

Inflation and the Housing Market

Inflation has reached a forty-year high this year. For the average consumer, the pinch was probably felt at the gas pump and in the grocery store. It may have even hindered your ability to save for a home purchase.

Despite the Federal Reserve's efforts to reduce inflation, August data show that the rate was still higher than expected. This news influenced the stock market and fueled speculation about a possible recession. It also influenced the Federal Reserve's decision to increase the Federal Funds Rate last week. According to Bankrate:

“. . . the Fed has raised rates again, announcing yet another three-quarter-point hike on September 21 . . . The hikes are designed to cool an economy that has been on fire. . .”

While their actions do not directly influence mortgage rates, they have contributed to the intentional cooling of the housing market. According to a recent Fortune article:

“As the Federal Reserve moved into inflation-fighting mode, financial markets quickly put upward pressure on mortgage rates. Those elevated mortgage rates . . . coupled with sky-high home prices, threw cold water onto the housing boom.”

The Impact on Rising Mortgage Rates

Mortgage rates have fluctuated in recent months as economic pressures have increased. According to Freddie Mac, the average 30-year fixed mortgage rate recently surpassed 6% for the first time in well over a decade (see graph below):

Mortgage rate increases this year are a major reason why buyer demand has slowed in recent months. Essentially, as interest rates (and home prices) rose, so did the cost of purchasing a home. As a result of the pressure on affordability and pricing some buyers out of the market, home sales slowed and the inventory of homes for sale increased.

Where Experts Say Rates and Inflation Will Go from Here

Moving forward, both of these factors will continue to impact the housing market. A recent article from CNET puts the relationship between inflation and mortgage rates in simple terms:

“As a general rule, 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, has this to say about where rates may go from here:

“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, . . .”

While there is no way to predict where mortgage rates will go from here, there is one thing you can do to stay informed: contact a reputable real estate advisor. They keep an eye on what's going on right now and can help you understand what the experts are predicting. They can offer you the best advice possible.

Bottom Line

Rising inflation and higher mortgage rates have had a significant impact on the housing market. Let's connect to get expert advice on the latest housing market trends and what they mean for you.