November 29, 2021 by Premium Mortgage Corporation

In October, consumer prices increased by 6.2% compared with a year earlier, as rising costs for food, gas, housing, and vehicles are impacting households across the country. This 6.2% increase marks the highest inflation rate in more than three decades, and could make the Federal Reserve take action.

Since April of this year, Fed Chairman, Jerome Powell, and the Federal Open Market Committee Members have called this a “transitory” period, suggesting the surge is a product of supply chain shortages and a short-term rebound from the pandemic recession. However, this phase of higher inflation has continued much longer than economists and the Fed predicted.

Why home buying is generally a smart decision during inflation

If you’re a homebuyer, you may think it’s a wise move to stand pat and wait until real estate prices come down, especially if inflation accelerates with the passing of President Biden’s $1 trillion infrastructure bill. On the contrary, purchasing a home is considered a smart financial decision during an inflationary period. Real estate can be one of the safest and smartest investments to make in a period such as this one, because it’s an investment that historically increases in value over time and is a highly liquid asset. Since mortgage rates are still hovering around historically low levels, this is especially true if you lock in a fixed rate.

For example, if you secure a mortgage with a low fixed rate, the debt remains fixed and the value of the homes increases. What’s more is this increase in value can be significant in the short term due to the surge in consumer prices. Meanwhile, renters will have to endure the likelihood of a rent hike.

Will the Fed raise mortgage rates as a result of inflation?

The Fed does not control mortgage rates. But based on economic conditions, they can adjust the benchmark overnight lending rate, which is what companies and institutions pay to borrow money. This can have consumer impact, because when the Fed raises rates, it costs more for banks to borrow money, which trickles down to consumers. When a rate hike occurs, mortgage interest rates usually follow in order for mortgage originators, like Premium Mortgage Corporation, to meet the rate requirements from banks.

Given that the Fed has yet to raise the benchmark lending rate, and with mortgage rates as low as they currently are, now could be the perfect time for you to buy a home. With the holidays upon us, consider asking family members and relatives what they paid for their first house and what it’s worth today. Their answers might convince you even more.

And what better lender to choose for your mortgage than Premium Mortgage Corporation? Get in touch with one of our experienced Loan Officers today to determine the best loan for your home buying needs.