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Rates and Inflation: What You Need To Know

Monday, November 28, 2022   /   by Nick Waldner

Rates and Inflation: What You Need To Know

This is why mortgage rates are rising, and where they’ll head from here.

What is it that drives mortgage rates? My team and I had the privilege of working with Barry Habib, a great coach and mentor, to help us understand what has happened over the last couple of years. Today, I’m going to share some of what we learned with you.


Typically, what we see in real estate is that mortgage rates tend to track with inflation. As inflation rises or falls, so do the rates. This trend is very prominent in the graph at 0:38 in the video above, right up until the beginning of 2020. The pandemic marked a break with this trend, where inflation fell while fear rose.


Notionally, interest rates should have fallen to match the drop in inflation, but that would have caused rates to drop to zero. Instead of allowing this, the government stepped in and introduced something called “quantitative easing.” This basically means that the government became a secondary market, purchasing mortgages. After signing your note with your lender, they would resell that note to the government. This allowed mortgage rates to stay consistent since they had a guaranteed buyer at those same rates.

"As inflation rises, so do the rates."

You’ll note that the rates didn’t rise immediately as inflation began to take off. This is because the prevailing sentiment was that this rise in inflation would be transitory. It’s becoming clear now this was incorrect. This false belief in a temporary spike in inflation caused the government to continue its program for an entire year after the spike began, meaning that interest rates held firm during that period.


Now that the government has caught on to what is going on with inflation, they’ve terminated quantitative easing, meaning your lender has to find a true buyer on the secondary market. That means that interest rates will naturally rise for those loans to remain competitive on the secondary market. 

What we know is that inflation has likely peaked and will begin to come down. If the trend holds true for the inflation rates, then there’s hope for the future. If you have any questions about this or anything real estate related, please reach out and give me a call. I’d be delighted to help you out.

Waldner Winters Team of Keller Williams Realty Centre
Nick Waldner
9250 Rumsey Road, Suite 100
Columbia, MD 21045

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