Recent Inflation Data and the Impact on Mortgage Rates

Mortgage Rates, and Inflation Data Breakdown

Economists Weigh in on Housing Affordability Challenges

If you have been considering buying a house recently, then no doubt you have been paying attention to all of the conversations surrounding inflation, mortgage rates, the real estate market, and the economy as a whole. Compared to the interest rates seen during the pandemic, the current mortgage rates might seem ludicrous, but its important to understand what is impacting these mortgage rates, and why the current data available to us suggests that mortgage rates have topped out, and could continue to decrease throughout 2023.

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Examining the Current Mortgage Rates

As mentioned previously, looking at the current mortgage rates compared to pandemic interest rates might seem like a shock for some potential homebuyers. What is important to note is that those historically low-interest rates are not common in the real estate market, and were in part caused by the pandemic and the emergence of remote work, as well as the housing inventory at the time. When looking at the cause of our current mortgage rates, the most important factors to consider are housing demand, and the latest data on inflation. When rates climbed over 7% late last year, the reason behind that was because of the latest data on inflation, which showed inflation not slowing down at all. In recent months, however, we are seeing light at the end of the tunnel as far as inflation is concerned. This light at the end of the tunnel has contributed to a steady decline in mortgage rates, with the average 30-year fixed rate falling to 6.13% last week, according to Freddie Mac and NAR. Looking forward to where rates might go in the near months, it’s important to look at where the experts expect inflation to head.

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Latest Inflation Data

As mentioned earlier, mortgage rates are heavily impacted by data indicating where inflation is at, and more importantly, if the efforts of the Federal Reserve are having an impact. Any decrease in mortgage rates is heavily dependent on the deceleration of inflation. If inflation continues to show signs of decelerating, expect mortgage rates to follow quickly. In November, the inflation rate was at 7.1%, the lowest of 2022. This in turn contributed to the 2.5% increase in pending home sales in December, the first increase in 6 months, as well as a 2.3% increase in new construction home sales. The deceleration in the inflation rate is also not just based on that one key statistic from November, as the Consumer Price Index (CPI), a key metric used to determine the inflation rate, fell by 0.1% in December.

These statistics could be attributed to the policy set by the Federal Reserve, which has been raising its Federal Funds rate consistently throughout 2022 and into 2023.  The Federal Reserve is set to announce its next expected interest rate increase this week, on February 1st at the conclusion of its two-day meeting, held monthly. The Fed is expected by many economists to raise interest rates by a quarter point, which is consistent with the message they have been saying for months now, which is that even with the good news coming from the latest inflation data, it is still not enough. Some economists, however, are concerned that these interest rate increases will eventually push our economy into a recession. It will be important to see how much of a rate increase the Fed decides on, and what language they use when discussing whether there will be any interest rate increases in the future.

Contact the Ask Cathy Marketing Group For All Your Real Estate Needs

Here at the Ask Cathy Marketing Group, it is our goal to be your economist of choice when it comes to the real estate market. Our Realtors are full-time professionals, who stay up to date on all of the latest changes in the real estate market in order to stay on top of the latest information, and WIN for their buyers and sellers. If you are interested in buying or selling a home in the near future, and want to talk about your wants and needs with one of our Realtors, contact us today by filling out the form below, or by calling us at (816)-268-4033!

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