With the current state of the economy, many are wondering how all of this inflation correlates with mortgage rates. Short-term inflation generally has little impact on mortgage rates, which are more closely linked to the 10-year Treasury bill (where rates tend to rise slowly). When the Federal Reserve increases the one rate it controls – called the federal funds rate – mortgage rates are more likely to fall.
Why is this? This interest rate, which the Fed controls, is what banks and credit unions use to lend to each other overnight. This is a different metric than that for a mortgage loan.
So, What Does This Mean For Homebuyers?
As consumers anticipate further increases in inflation, reactions to the changing housing market are varied. While some argue that now is a good time to sell a home, others worry that selling will mean purchasing their next home in the same market where they will pay more for the next property that they are looking to purchase. But there is a tremendous upside of owning a home during an inflationary period; homeownership offers stability and security.
Home prices have been increasing for quite some time, and economists believe that they’re going to continue to climb throughout 2022. So, as a buyer, how can you protect yourself from rising costs for goods and services? The answer lies in housing.
Buying a home allows you to lock in your monthly mortgage payment for the foreseeable future. If you are currently a homeowner, consider refinancing for a lower rate to save monthly. As prices rise, your monthly payment will be consistent thanks to your fixed-rate mortgage. This gives you the peace of mind that the bulk of your housing costs are shielded from future interest rate increases.
As an added incentive to buy, consider that today’s mortgage interest rates are lower than they have been in decades. While inflation decreases what your dollars can buy, low mortgage rates help counteract it by boosting your purchasing power so you can get more home for your money while keeping your monthly payments down. This is especially important during an inflationary period because you’ll want to protect yourself from the impact of inflation as much as possible.
The bottom line is that the best hedge against inflation is a fixed monthly housing cost. Not sure where to start? Give us a call at (760) 930-0569 and one of our loan officers will discuss your options with you.