Inflation Rising: Will Mortgage Rates Go Up in California?

Inflation pressures are rising in the United States, especially California.  The Consumer Price Index will come out Friday to support what we all know.  How will it impact mortgage rates and home affordability in California?

More commonly called “The Cost of Living Index”, CPI measures cost changes in the typical items bought by American households. Among others, CPI measures goods and service in apparel and recreation; medical care and education; and housing and transportation.

The March CPI data is expected to show an increase in the cost of living for the 17th straight month — a reading that would take CPI to an all-time high.

If you’ve filled your gas tank, seen your rent increase, sent a child to school, or shopped for groceries, you’re likely not surprised.  Household budgets have been squeezed from all angles lately. The dollar’s purchasing power is waning.

This is inflation, defined. And a weaker U.S. dollar is bad for mortgage rates.

A 30 year fixed mortgage helps protect you from inflation because you don’t have to worry about your rent or adjustable rate mortgage from rising.

The connection between the value of the U.S. dollar and mortgage rates is direct. When inflation pressures rise, mortgage rates in the Inland Empire tend to rise, too, because mortgage rates are based on the price of mortgage backed bonds — a security bought, sold and paid in U.S. dollars

Inflation, in other words, renders mortgage bonds less valuable to investors, all things equal, so investors sell them as inflation pressures grow. More selling leads to lower bond prices which, in turn, causes mortgage rates to rise.

It’s why March’s Cost of Living data is so important to home buyers in Temecula, Murrieta, Menifee, Corona, Riverside, and Moreno Valley.  Higher levels of CPI can harm home affordability, and stretch your household budget uncomfortably.  That is why home buyers should get their offer accepted now and lock in the rate and protect their payment for 30 years.  This helps protect you from a landlord from increasing your rent!

As Memorial Day approaches, gas prices are projected to spike, offering little relief from the inflationary pressures in the economy. It’s one reason why mortgage rates should trend higher over the next few months.

If you’re wondering whether to lock or float your mortgage rate, consider locking in. At least today’s rates are a sure thing. Tomorrow’s rates could be much higher.

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