Stagflation is an economic term created by combining the words stagnation and inflation. It describes a rare and highly challenging economic condition where three negative trends occur simultaneously: 1) Slow economic growth (stagnation) 2) High unemployment. 3)Rising prices (inflation)
Why stagflation matters to mortgage rates and home buyers is it creates a uniquely hostile environment. It combines the worst aspects of an economic boom (high interest rates) with the worst aspects of a bust (job insecurity and low inventory).
The mortgage industry operates at the mercy of the 10-year Treasury yield, which serves as the benchmark for 30-year fixed-rate mortgages. When stagflation fears grip the bond market, yields rise to compensate for the eroding purchasing power of inflation, dragging mortgage rates up with them.
Stagflation is usually caused by a “supply shock” (a sudden event that drastically increases the cost of producing goods or limits the supply of a critical resource (like a war severely disrupting global oil supplies). Because it costs much more to produce goods, prices spike. Simultaneously, businesses can’t afford to produce as much, so economic output drops and they lay off workers.
We are already seeing this play out in real-time. After briefly touching multi-year lows in late February, average 30-year fixed mortgage rates have rebounded upwards.
We started 2026 with a lot of optimism. In February, mortgage rates finally dipped below 6% for the first time in over three years. Alterna Mortgage was at 5.625%.
However, since the start of the conflict with Iran rates have been on a volatile ride. Energy price spikes and inflation fears pushed the 30-year fixed average back up, reaching a peak of 6.46% earlier this month. Alterna Mortgage is at 5.99%.
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