Posts tagged Inflation
What’s Ahead For Mortgage Rates This Week : July 19, 2010
Jul 19th
Mortgage markets improved for the 5th straight week last week as consumer confidence waned and inflation data tamed. Investors ignored the news that 19 of 23 reporting S&P 500 companies beat their respective earnings estimates and sold off on stocks.
There’s concern about a potential economic slowdown for the months ahead and it may be well-founded.
Despite an improving jobs situation and booming retail sales, households are less optimistic about the future and so is the Federal Reserve. In its post-meeting minutes released last week, the Fed revised its U.S. growth estimates downward for 2010 and 2011.
For rate shoppers in Carolinas , this is excellent news.
Because of the weakness, conforming mortgage rates fell again last week, extending the current rally in rates to 16 weeks. Mortgage rates are lower than at any time in measured history.
This week, data will be housing market-heavy and mortgage rates could rise or fall.
- Monday : National Association of Home Builders Index
- Tuesday : Building Permits and Housing Starts
- Thursday : Existing Home Sales
Strength in any, or all three, of these housing-related reports should push mortgage rates higher on higher hopes for the economy. Weakness, on the other hand, should have the opposite effect.
Overall, though, mortgage markets are trending better. Momentum is in effect and refinance activity is soaring. That said, it doesn’t mean that rates won’t rise — they could absolutely. It just takes a change in market sentiment. And that could happen quickly.
Mortgage rates are artificially right now so even the slightest jolt could cause them to spike. It would be similar to what happened in June 2009 when rates rose 1.125% in just 10 days’ time. Therefore, if you’re shopping for a mortgage and like the rate you’ve been quoted, consider locking in as soon as possible.
There’s very little room for rates to fall further but a lot of room for rates to rise. Make sure you’re on the right side of that bet.
The March Fed Minutes Explains Why Home Sales Weren’t Worse This Winter
Apr 7th
Mortgage markets improved yesterday after the Federal Reserve released its March 16, 2010 meeting minutes. It’s good news for in Charlotte home buyers and rate shoppers — rates could have just as easily gone the other way.
The Fed Minutes is a detailed recap of the debate and discussion that shapes the nation’s monetary policy. The notes are dense; it takes 3 weeks to compile them for publication.
As compared to the more well-known, post-meeting press release, the Fed Minutes are extremely lengthy. For example:
- March 16 press release : 451 words
- March 16 meeting minutes : 6,152 words
If the press release is the executive summary, the Fed Minutes are the novel.
The extra words matter.The minutes recount what the Fed did, how the Fed did it, and what the Fed plans to do next. And, in the minutes, Wall Street looks for clues.
This is why the report is important to every rate shopper in the country.
When the Federal Reserve publishes the minutes from its meetings, it leave clues about the groups next policy-making steps. For example, in March’s Fed Minutes, it’s clear that the Fed’s concern about inflation is hugely diminished and that’s a major plus for the mortgage bond market.
Inflation causes mortgage rates to rise. The absence of inflation, therefore, helps them to fall. This improves home affordability, among other things.
Similarly, the Fed Minutes note that real estate sales may have been worse throughout the winter months if not for low mortgage rates and the sense among Americans that home prices were troughing. We may infer, therefore, that rising rates may suppress home sales later this year.
Markets are always looking for clues from inside the Fed and the last meeting’s minute signal that the economy is on its way up. If you’re looking for a bargain in the housing market, your window to act may be closing.
For Clues About The Future Of Mortgage Rates, Watch For Inflation
Mar 19th
Homes are more affordable across the nation as the housing market emerges from a slow winter season with mortgage rates still near 5 percent.
Soft housing and low rates are an excellent combination for home buyers but whereas home values rise with a gradual pace, mortgage rates change in an instant. It’s something worth watching.
Each 0.25% increase to conventional or FHA rates adds approximately $16 per month for each $100,000 borrowed. Mortgage rate volatility can change your household budget.
If you’re trying to gauge whether rates will be rising or falling, one keyword for which to listen is “inflation”. Mortgage rates are highly responsive to inflation.
By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive. However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.
This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars. As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall. Mortgage rates move opposite of bond prices.
Prices down, rates up.
In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.
So long as it lasts, the cost of homeownership will remain relatively low. Combined with the expiring tax credit, the timing to buy a Charlotte home may be as good as it gets.
