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The Inflation Fairy Tale

Monday, May 15, 2023   /   by Darcy Miller

The Inflation Fairy Tale

Once upon a time, in a bustling city filled with aspiring homeowners, the topic of inflation and mortgage rates dominated the headlines. People anxiously wondered about the implications of the recent decision made by the Federal Reserve (the Fed). Questions swirled in their minds—how would it affect them, the housing market, and their dreams of owning a home? In search of clarity, they sought to unravel the mysteries behind the headlines. 


The Fed had been toiling diligently to combat the rising inflation, but despite some improvement, the numbers indicated that the inflation rate remained higher than the target of 2%. It was this realization that played a significant role in the Fed's recent choice to increase the Federal Funds Rate. Financial experts, like those at Bankrate, elaborated on this development, stating that the Fed's actions were aimed at taming an economy that had surged after bouncing back from the 2020 recession caused by the devastating impact of the coronavirus. 


While the Fed's decisions did not directly dictate mortgage rates, they certainly had an impact, contributing to intentional measures taken to cool down the housing market the previous year. Homebuyers keenly felt the effects of these actions. 


During periods of high inflation, the cost of everyday expenses soared, leaving people feeling the pinch at the gas pump and the grocery store. Raising the Federal Funds Rate was the Fed's proactive attempt to rein in inflation. If successful, it could lead to a reduction in mortgage rates, ultimately making homeownership more affordable for prospective buyers. In times of high inflation, mortgage rates tended to rise, but as inflation eased, experts predicted that mortgage rates would follow suit and fall.


Looking ahead, both inflation and mortgage rates would continue to exert influence on the housing market. Lawrence Yun, the Chief Economist at the National Association of Realtors (NAR), believed that mortgage rates would likely descend later in the year as consumer price inflation subsided. Echoing this sentiment, Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), anticipated gradual decline in mortgage rates as the economy slowed down.


Although it was impossible to predict mortgage rates with absolute certainty, experts concurred that rates would likely trend downwards throughout the year if inflation diminished. To stay well-informed, individuals were advised to seek guidance from trusted real estate advisors who were adept at interpreting the latest insights and understanding the projections of experts. These advisors kept their fingers on the pulse of current events, providing valuable knowledge on how market changes could impact individuals' plans for homeownership.


In conclusion, it was crucial not to be bewildered by sensational headlines regarding the Fed's decisions. The path of mortgage rates hinged on the trajectory of inflation. If inflation cooled down, mortgage rates were expected to decline accordingly. It was essential to connect with experts who could provide insights into the ever-changing housing market and its implications for individuals. By staying informed, they could navigate the journey towards homeownership with confidence and clarity.

Miller Team | Castillo Real Estate
Paula Miller
6518 Sherry Lane
St. Augustine, FL 32095
904-833-5859

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