39-Year Inflation High Inspires Federal Reserve to Taper Bond Purchasing
In October 2021, the United States hit a 30-year inflation high only to hit a 39-year inflation high the follow month. In November 2021, consumer prices reached 6.8%; this resulted in the fastest inflation spike since 1982. As the United States continues to cope with record-setting inflation, many analysts believe that the current data represents long-term structural change, as opposed to short-term adjustments.
But what does this mean for mortgage rates heading into the New Year?
First-Time Home Buyers Facing Barriers to Entry
In response to the 30-year inflation high, the Federal Reserve plans to taper its bond purchase program. Throughout the coronavirus, the Federal Reserve compensated for low economic activity by buying additional bonds. However, inflation consistently reached highs after what some are calling one of the shortest recessions in U.S. history.
As a result of increased consumer spending and a rejuvenated housing market, the United States now seeks to run the other way. The U.S. housing market faces a long-standing challenge of limited inventory, presenting barriers to first-time home buyers. As a matter of fact, U.S. housing inventory just hit an all-time low at the end of November.
In addition, real estate developers and builders constantly seek new talent while in the midst of a labor and supply shortage. Overall, this contributes to fewer housing starts. And when builders can build houses, they concentrate on higher-value properties.
Finally, large real estate developers (i.e. Zillow and others) purchased single-family homes across the country, edging out first-time buyers time and time again. Interestingly enough, Zillow’s iBuyer program actually achieved 1.9% of all home sales in the third quarter of 2021.
What Mortgage Rates Will Look Like After U.S. Hit a 39-Year Inflation High
In the midst of the ongoing coronavirus pandemic, the real estate is as hot as ever. After an abysmal 2020 due to statewide lockdowns and a severe lack of COVID-19 vaccines, 2021 saw one of the wildest years in real estate history, smashing a plethora of records.
Heading into 2022, consumers saw growth in average wage earnings, hitting the highest increase since 2008. Similarly, unemployment fell substantially among a tight labor market. However, the big challenges to home buying remain: inventory and affordability.
Because of these obstacles, home prices plan to rise throughout 2022.
“Most experts say housing demand will stay strong in 2022 unless inflation continues to outrun wages at the current feverish pace, which could stall buyer appetite. Rising inflation is also putting renters in a pinch who can no longer afford to save as much for a down payment when rental rates are skyrocketing.”
- Natalie Campisi, Forbes Advisor
As for mortgage rates, many experts agree that they could hit 4% prior to the end of 2022. Historically, when the Federal Reserve tapered bond purchasing back in 2013, mortgage rates nearly reached 4.5% prior to the end of the year.
Becoming a Home Buyer in the Midst of a 39-Year Inflation High
While becoming a first-time home buyer presents its struggles, plenty of merit remains. Even as mortgage rates climb back up to 4% (or higher), the real estate market tends to fluctuate over time. Moreover, home buyers always maintain the option of refinancing down the road.
For legal guidance with becoming a home buyer in the midst of a 39-year inflation high, schedule an appointment with the real estate attorney at Lee Scott Perres, P.C.
