Inflation, or price-level growth, is important for REALTORS® because it ultimately affects mortgage rates and the ability of home buyers to purchase a home.
Palm Coast, FL – April 26, 2011 – Inflation, or price-level growth, is important for REALTORS® because it ultimately affects mortgage rates and the ability of home buyers to purchase a home. If the Federal Open Market Committee (FOMC) lowers interest rates to stimulate the economy, you may see more home buyers in the market; however, lowering rates can also lead to inflation. So, to combat inflation, the central bank increases interest rates—which may dampen economic growth and demand for home buying.
During the recent financial crisis, fears of deflation (price-level decline) were rampant. With financial markets now stable, some fear that inflation is around the corner. There is also the possibility of stagflation, characterized by high unemployment and high inflation. In stagflation, it is difficult for the central bank to raise interest rates to combat inflation due fear of further job market deterioration if demand is hurt by the increased interest rates.
April 2011 Highlights
- Increases in producer prices are beginning to creep into consumer prices, especially in energy prices.
- Headline consumer prices increased far too quickly in the month; only apparel, computers, and household furnishings have seen price declines.
- A survey of industry economists finds rising prices and the expectation of further price and cost increases.
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