How to Explain the Impact of Inflation on Home Loan Rates

San Diego Market Matters

In the wake of the Fed’s QE3 (or Quantitative Easing) announcement, you may be wondering how this new effort to stimulate the economy may impact the mortgage and housing markets.   Well, you would be right to wonder.  That’s because one of the consequences of QE3 could be inflation—which is the archenemy of bonds and home loan rates.

Why this is important…

Imagine for a moment that you are going to lend your very own money to someone to buy a house. So you go through all the paces to determine this person is a good credit risk, you do the loan, and you start receiving $1,500 per month as your regular payment. You then of course take that $1,500 and start loading up your shopping cart with the goods and services you need on a monthly basis…food, clothing, medicine, gas, and so on.

But over time, you notice something…

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