08/31/2023
Have you ever wondered how inflation impacts the housing market? Believe it or not, they’re connected. Whenever there are changes to one, both are affected. Here’s a high-level overview of the connection between the two.
The Relationship Between Housing Inflation and Overall Inflation
Shelter inflation is the measure of price growth specific to housing. It comes from a survey of renters and homeowners that’s done by the Bureau of Labor Statistics (BLS). The survey asks renters how much they’re paying in rent, and homeowners how much they’d rent their homes for, if they weren’t living in them.
Much like overall inflation measures the cost of everyday items, shelter inflation measures the cost of housing. And for four consecutive months, based on that survey, shelter inflation has been coming down.
Inflation and the Federal Funds Rate
What’s the Fed been doing to lower inflation? They’ve been increasing the Federal Funds Rate. That interest rate influences how much it costs banks to borrow money from each other. When inflation climbed, the Fed responded by raising the Federal Funds Rate to keep the economy from overheating.
A Brighter Future for Mortgage Rates?
As Mortgage Professional America (MPA) explains:“. . . mortgage rates and inflation are connected, however indirectly. When inflation rises, mortgage rates rise to keep up with the value of the US dollar. When inflation drops, mortgage rates follow suit.”
While no one can predict the future for mortgage rates, it’s encouraging to see the signs of moderating inflation in the economy.
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Have you ever wondered how inflation impacts the housing market?
