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How Falling Gas Prices May Increase Your Home Purchasing Power

2008
07.30

Falling gas prices is doing more than saving Americans money at the pump — it’s also helping to pressure mortgage rates lower.

Mortgage rates had spiked between mid-June and mid-July, mostly because economists identified inflationary signals in the U.S. economy.

The largest signal, of course, was the ever-rising cost to fill a car with gasoline. As gas prices rose, so did the overall inflationary pressure on the U.S. economy.

Mortgage rates tend to rise when inflation is present because inflation devalues the U.S. dollar. Higher rates are necessary to offset this consequence.

But, the opposite is also true. The absence of inflation tends to be good for rates; it’s why we’re cheering the gas price chart above. As gas prices drop, the Cost of Living drops, too, relieving at least one of the economy’s inflation sources.

Everyday drivers are cheering today’s pump prices but active home buyers and mortgage rate shoppers should be, too. It’s creating one less upward tug on the cost of financing a home.

Since mid-July, gas is down 19 cents per gallon nationwide and has fallen over 13 consecutive days.

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