Inflation is back and so are higher interest rates!

Dated: March 22 2022

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Inflation and Interest Rates

Since February of 2021, I have been predicting inflation would return and when it did, the Federal Reserve Board would be forced to cause interest rates to increase. This was not a hard prediction to make even back then as we saw gasoline prices, food prices, car prices and particularly home prices starting to increase at an inordinate rate. Particularly, if you are in the housing industry or trying to buy a house, you know how competitive it has been. A large percentage of listings are selling over full price with multiple buyers in just a few days.

The Federal Reserve Board also known simply as “The Fed” has basically two jobs:
1) to stimulate the economy in recessionary times; and
2) to dampen the economy in inflationary times.
In order to fight Covid, the Fed has kept rates artificially low for a long time. Now that inflation has set in, they have to act to induce rates up to try and slow it down. What sellers and buyers of real estate have to understand, is that for every 1% rise in mortgage rates, approximately 1 million fewer buyers in the US can buy a home.

In the last three weeks, mortgage rates have risen from 3.5% to 4.6%. The Federal Reserves Chairman, Jerome Powell, who has been recommending 4 to 6 gentle interest rate hikes this year of .25% each, is now considering .5% increases.

Matt Carter of Inman News, a real estate related news service, has written a great online article on this phenomenon. I have posted this article on my website, MnHomesbyDave.com under the Real Estate News tab.

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Dave and Ann Feerhusen

"Experience you can trust!" I am very fortunate, along with my partner and wife, Ann, to have spent my career of 37+ years helping people successfully market their homes in the Twin Cities. We have ha....

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