Over the past four decades, through protracted wars, bitterly contested elections and economic upheaval, American consumers have been able to count on this constant: The inflation rate has remained below the average rate on a 30-year mortgage. .

That changed last month. The pace of inflation in the United States jumped to 4.2%, according to the United States Bureau of Labor Statistics. The typical 30-year mortgage, on the other hand, costs just over 3%.

It was the first time since August 1980 that US inflation was higher than mortgage rates. This summer was the sinkhole of the stagflation era, and it came just before the Federal Reserve embarked on an aggressive strategy to tame soaring inflation – a measure that nearly reached a crippling 15% rate. federal funds during the last breath of the Jimmy Carter administration.

Although the rate of inflation does not determine mortgage rates, the two parameters are correlated. And it’s not hard to imagine that a sustained surge in consumer prices would be accompanied by a rise in mortgage rates, which hit record lows in January.

Inflationary threat looks modest for now

What, if any, does this turnaround mean for mortgage borrowers? The answer is not yet clear, but many housing economists say rising inflation does not appear to be a long-term threat, but a normal correction after last year’s sharp drop in spending.

“I’m not worried about the implications of the 30-year drop in inflation for several reasons,” says Ralph McLaughlin, chief economist at Haus.com. “Firstly, it is not that unusual for the 30-year mortgage rate and the inflation rate to come closer to coming out of a recession, and secondly, inflation seems quite high due to the severe deflation that we experienced at this time last year. “

How the inflation picture affects mortgage rates also depends in part on whether consumer prices continue to rise sharply.

“The Federal Reserve believes that the price spike is temporary and that price increases will subside as supply catches up with demand,” said Lynn Reaser, chief economist at Point Loma Nazarene University. “The relatively subdued response from the bond market indicates that it broadly believes in this view, which has affected markets related to long-term bonds, such as mortgages.”

This explains why mortgage rates did not rise sharply after the federal government announced the highest rate of inflation in years.

Greg McBride, chief financial analyst at Bankrate, takes the rising inflation in stride. Comparing prices in the midst of this spring’s recovery to those of last spring’s crisis, the consumer price index looks – ahem – inflated.

“The year-over-year inflation rate has been boosted by the so-called base effect – the fact that price levels actually fell a year ago skews the comparison with levels there. a year ago, ”says McBride. “This phenomenon may persist for two to three months given the drop in prices a year ago and the surge in economic activity now. But it is more of an anomaly than a lasting condition. “

Are the prices overheating?

However, there are early signs that prices may continue to rise. In the United States and around the world, massive government stimulus measures have pumped money into the pockets of consumers. Meanwhile, home and inventory prices have skyrocketed, making affluent consumers richer. And the costs of raw materials such as wood and steel have also increased.

“If price increases don’t start to moderate over the next few months, mortgage rates could rise dramatically,” says Reaser.

There is no clear consensus on the outlook for inflation. Janet Yellen, former Fed chief and current Treasury secretary, recently warned that the US economy could overheat. Current Fed Chairman Jerome Powell is not so worried.

Nor Todd Metcalfe, economist at Moody’s Analytics. “While we expect inflation to be high relative to recent history, we expect it to fall below 3% this year and continue to decline before approaching 2% in the next two years, ”he said.

Homebuyers, meanwhile, could be forgiven for pointing out that the official inflation rate doesn’t quite reflect the challenges they face. The median price for resale of homes climbed a record 17% from March 2020 to March 2021, according to the National Association of Realtors – but house prices are not directly reflected in the price index at the consumption.

“When house prices rise and rents rise at a relatively more moderate rate, one could argue that inflation is underestimated,” says McBride.

Inflation disappeared decades ago

Inflation has not threatened the US economy for decades. The last time rising prices posed a threat was in 1991, when the rate hit 4.2 percent. Inflation since then has only averaged 2.3 percent, according to World Bank data. This number is roughly in line with the Federal Reserve’s 2% inflation target.

The massive revival of the Great Recession brought predictions that inflation would eventually return, but those fears turned out to be unfounded. Despite a spasm in spending by the world’s largest economies, inflation has remained under control.

If anything, the U.S. government cash machine has worked even harder during the coronavirus pandemic. Former President Donald Trump and current President Joe Biden have both signed stimulus packages, and the Fed has backed the mortgage market.

All of that money will flow through the real estate market for years to come. Real estate is generally viewed as a hedge against inflation, so home values ​​are likely to withstand times of higher prices.

Even if inflation does not turn into a long-term problem, its recent return indicates that mortgage rates are likely to continue to rise.

“If inflation stays at a higher level, mortgage rates will eventually rise as well,” says McBride.

For homeowners, the message is clear: you are unlikely to find a better refinance deal in the future. “The big thing for consumers to remember right now,” says McLaughlin, “is to refinance your mortgage if you haven’t already.”

Learn more: