What Used Cars Mean For Mortgages
A used Toyota might not seem that important to home buyers, but upon a closer look, one might have more to do with the other than you would realize. Over the past couple of years, used car prices reached all-time highs. Over the same time frame, home prices have also reached all-time highs. Consumers of all types, from homes to cars, to even bacon, have been seeing outrageous prices when it comes time to paying. The common thread amongst high prices everywhere is that inflation has been raging out of control. However, some prices are more important than others in terms of telling you which way the winds blow. The price of a used Toyota is a better indicator for home buyers what inflation has in store than most. Here’s why used car prices matter for home buyers and what they have to do with mortgage rates.
The Connection Between Mortgage Rates and Used Car Prices
What does the cost of a Kia in Quincy have to do with your mortgage rate in Dorchester? Actually … a lot! The latest data is in for used car sales and used car prices are down over six percent from their January 2022 levels. Believe it or not, this is great news for home buyers and might give you some clue about what you can expect from mortgage rates. Buying a car and buying a used car are very different, so why then should we think they have some sort of relationship?
The reason why home buyers should be paying such close attention to used cars is that their price is a great indicator of inflation levels. Used car prices are used to calculate the Consumer Price Index (CPI). The CPI is one of our major indicators of inflation as it is used to measure the change in price of consumer goods over time. Decreasing used car prices might be a good sign that supply chain bottlenecks are easing. Prices for cars skyrocketed during the pandemic as global shipping was interrupted and microchips faced shortages. This meant that new cars were hard to come by, so used cars were in even greater demand. If used cars are becoming cheaper then it might mean that more cars in general are more available. Regardless of the reason, if used car prices decline then the CPI should also decline, which means that inflation levels will decline. Home buyers should rejoice because it could mean relief for mortgage rates.
Mortgage Rates and Inflation
Mortgage rates and inflation are related. One of the few tools the Federal Reserve has to fight inflation is to raise interest rates. That is why they have been raising interest rates all year. Recently, they took the dramatic step of raising interest rates by the most they have done in the past 20 years. Interest raetes and mortgage rates are linked at the hip. The Federal Reserve does not set mortgage rates, however, the people who do watch what they do closely. If the Federal Reserve is given data that inflation is getting under control then they might be less inclined to push interest rates up even higher. In turn, home buyers might be able to hope that mortgage rates are done rising. Mortgage rates have risen dramatically in 2022 and have upset many home buyers. Rising mortgage rates and rising home prices have pushed some home buyers out.
Final Thoughts
There is no guarantee that any price declines we see with used cars will translate to more favorable mortgage rates for home buyers. While all things in the economy are related, there are few direct arrows of causality. The truth is that if it makes sense for you to buy a house then it makes sense for you to buy a house, regardless of inflation or mortgage rates.
Buying a house is about so much more than mortgage rates, equity, or where you are in the market. Becoming a homeowner is also about having a place of your own where you can make memories and share fun times with the one you love. Those benefits of homeownership make sense no matter your mortgage rate or what’s happening with the real estate market. If buying a house is affordable for you and you wnat to own a house, then nothing else should matter. Markets go up and markets go down. Sometimes there are good indicators. Regardless of the indicators, homeownership is great or some no matter what the market is doing.
If you have been thinking about buying a house but do not know if the numbers are right for you, contact us. The team at Peoples Choice Mortgage can give you a complimentary mortgage qualifier. From there, you can see if buying a house makes sense at today’s mortgage rates. If it ends up that today is not the right day for you to get a home loan, then that is okay too. At least you will know for sure what you will need for it to be the right time for you to buy the house of your dreams.
