Take January’s 6.4% inflation rate, add mortgage’s historic 2.5-point gap. That means an 8.9% home-loan rate.
“Numerology” tries to find reality within various measurements of economic and real estate trends.Mortgage rates today would be at 8.9% if they were priced according to this century’s typical spread above the inflation rate.My trusty spreadsheet reviewed the relationship between the monthly average 30-year, fixed-rate mortgage and the inflation rate .Critics say the Federal Reserve’s inflation battle, which roughly doubled mortgage rates, has gone too far.
How odd is it? The history books have only one other streak like this: 20 months that ended in July 1975, a time when inflation soared because of an Arab oil boycott, which inflamed U.S. consumer prices. This is one of many economic curiosities of the pandemic era. It’s fallout from the Federal Reserve’s unprecedented cheap-money bailout of the housing market that was used to stimulate a whipsawed economy.
Look back in March 2022, just as the Fed’s battle with inflation became serious. Mortgages averaged 4.2% that month vs. the 8.5% inflation rate – a 4.3-point gap.Yes, 6%-plus mortgages will throttle home sales and put huge pressure on housing pricing. Yes, that’s painful.
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