Housing Inflation Tango

September 3, 2023

Ever pondered the intricate dance between inflation and the housing market? Well, strap in, because this dynamic duo is more connected than you might think. Picture it: inflation, the wild child of the economy, and the housing market, your cozy abode. When one does the cha-cha, the other can't help but sway along. Here's a refined yet slightly whimsical breakdown of their unique relationship.

The Housing Inflation Tango with Overall Inflation

Shelter inflation, my dear reader, is the fancy term for the price growth exclusive to housing. It's like that annual check-up your doc insists on, but for your home. The Bureau of Labor Statistics (BLS) conducts a survey asking renters how much they shell out for rent and homeowners how much they'd charge for their digs if they weren't living in them. It's like getting the housing market's vital signs.

Just as overall inflation keeps tabs on the price tags of everyday goods, shelter inflation focuses on the housing market's financial pulse. Recently, for four straight months, shelter inflation has been coming down. Why should you care? Well, because shelter inflation is the heartthrob that contributes around one-third of overall inflation, as recorded in the Consumer Price Index (CPI). So, when shelter inflation starts to shimmy, it has a ripple effect on overall inflation. This dip in shelter inflation could be the economy's way of signaling that overall inflation might just take a breather in the near future.

This pause would be a breath of fresh air for the Federal Reserve (the Fed), who've been working tirelessly to put the inflation genie back in the bottle since early 2022. They've made some progress (it hit a whopping 8.9% in the middle of last year), but they're still on the quest for that elusive 2% target (the latest report shows it at 3.3%). The struggle is real!

Inflation and the Federal Funds Rate - The Feds' Jive

Wondering what the Fed's been up to in this grand spectacle? Well, they've been cranking up the tempo on the Federal Funds Rate. This interest rate has the power to make banks loosen or tighten their purse strings when borrowing money from one another. When inflation started doing the samba, the Fed played its trump card by raising the Federal Funds Rate to prevent the economy from bursting into flames.

Imagine it like a seesaw – when inflation starts getting all puffed up, the Fed swoops in to bring it back down to their 2% goal. It's like they're the babysitters of the financial world, trying to keep the unruly kid (inflation) in check.

A Glimmer of Hope for Mortgage Rates - The Foxtrot

So, what's the takeaway for you in all this financial choreography? While the Fed's moves don't hold the keys to your mortgage rates, they do have a say in the matter. No crystal ball can predict mortgage rates' future, but the sight of inflation putting on its "moderation" hat is heartening.

In Conclusion - The Final Bow

Whether you're in the market to buy, sell, or simply want to stay well-versed in the housing hoedown, let's chat. The world of housing and inflation is like a lively dance floor, and it's always a good idea to have a partner who knows the moves. Just call me. Text, dm, email, call...whatever, I'm everywhere 😎

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