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Inflation and Recession

Happy Thursday – I hope everyone is doing well. For this week’s video, I want to discuss how inflation and recessions affect interest rates. At a high-level interest rate usually go up during inflationary times and go down during a recession. I have cut a few comments on this below and will tell you what we are seeing in our local market right now on my video. As always, please call me to discuss or let me know if you have any additional questions. Thanks again for your trust, support, and referrals. As inflation increases, so does the price of everything, including mortgage rates. Inflation also reduces the demand that investors have for mortgage-backed bonds. As demand drops, the prices of mortgage-backed securities fall. That results in higher interest rates for all mortgage types. Looking back on mortgage rates, we can see that, since the 1980s, the 30-year fixed has typically fallen during recessionary periods. While the Federal Reserve sets monetary policy that impacts many types of financial products, fixed mortgage rates instead track the 10-year Treasury yield, a measure that isn’t immune to broader economic forces. In addition, since recessions come with reduced economic activity and higher unemployment rates, it follows there’d be less demand for mortgage financing. With less demand, interest rates fall. Weekly Newsletter

Stewart Sadler Managing Partner Cornerstone Mortgage Group ​ Georgia Residential Mortgage Licensee: 21412 • Company NMLS: 147913 • Individual NMLS: 147938

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