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2024-07-15 13:43:00 +0300

: Homeowners who locked in low mortgage rates have one reason to celebrate right now, economist says. Heres why.

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MarketWatch
By Aarthi Swaminathan

The governments inflation numbers confirmed that the price of literally everything has gone up. But an economist said that theres one group who actually may have benefitted from rising costs.

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Inflation may be at a 41-year high of 9.1% in June, thanks to rising gas and food prices, but asset holders like homeowners who have locked in a fixed-rate mortgage may actually benefit from home price appreciation, Justin Wolfers, an economist at the University of Michigan, tweeted:

Its not a good thing for everyone, Wolfers told MarketWatch in an interview. The claim is that some people benefit from inflation.

Its Econ 101, Wolfers said: If debt is valued at $X right now, when inflation rises, the money you owe doesnt go up to $X+1, even if your wages go up; It remains at $X. (Provided that the interest rate is not adjusted, based on inflation.)

Consider a homeowner who locked in a 30-year fixed-rate mortgage at 3%. While the prices of their car, gas, electricity, and other expenses go up, that homeowner will also see their home value rise with inflation. Yet their mortgage rate remains the same as it is not inflation adjusted, which means theyre still paying the same rate pre-inflation.

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