Mortgage News in the Carolinas
Posts tagged Inflation
What’s Ahead For Mortgage Rates This Week : April 11, 2011
0405 days
by Geoff Brown
in Mortgage Rates
Mortgage markets worsened last week as energy costs remained high, and jobs data looked strong. The safe haven buying that characterized the March mortgage market has subsided.
it’s driving mortgage rates higher across Carolinas.
Conforming and FHA mortgage rates rolled back 8 weeks worth of improvements last week and are now back to mid-February levels. The rise in rates is hurting refinance activity and home affordability.
The biggest story from last week figures to carry forward into this one — the Federal Reserve’s take on inflation.
In the minutes from its March meeting, the FOMC was shown to have discussed the possibility of raising the Fed Funds Rate ahead of schedule, and to be watching near-inflation closely. Both developments are in response to a growing economy with rising price pressures.
Mortgage rate shoppers should take note.
Inflation is a mortgage-rate killer. When inflation is present in the economy, all things equal, mortgage rates rise. Sometimes by a lot. And, usually, just the expectation of inflation is all it takes to make mortgage rates jump.
That’s what we saw last week.
This week, keep a close watch on new inflation-related data set for release. This includes Tuesday’s Retail Sales data, Wednesday’s Producer Price Index, and Thursday’s Consumer Price Index. Each release can potentially move mortgage rates although, if recent trends are an indication, expect for rates to rise.
Mortgage rates in Charlotte remain historically low. If you’re shopping for a mortgage, consider locking as soon as you can.
A Simple Explanation Of The Federal Reserve Statement (March 15, 2011 Edition)
0431 days
by Geoff Brown
in FOMC
Today, for the second straight meeting, the Federal Open Market Committee voted unanimously to leave the Fed Funds Rate unchanged within its target range of 0.000-0.250 percent.
The vote was 10-0.
In its press release, the FOMC noted that since its January 2011 meeting, the economic recovery “is on firming footing”, and that the labor markets are “improving gradually”. In addition, household spending “continues to expand”. Nonetheless, the Fed said, the economy remains constrained by rising commodity prices and the “depressed” housing sector.
The FOMC statement also re-affirms the group’s plan to keep the Fed Funds Rate near zero percent “for an extended period”, and to keep its $600 billion bond market support package — more commonly called “QE2″ — intact.
And, lastly, for the third straight time, the Federal Open Market Committee’s post-meeting release statement included a paragraph detailing the Federal Reserve’s dual mandate of managing inflation levels, and fostering maximum employment. Although it acknowledged inflationary pressures on the economy, the Fed said inflation remains too low for the economy currently, and that unemployment remains “elevated”.
In time, the Fed expects both measurements to improve.
Mortgage market reaction to the FOMC has been negative since the statement’s release. Mortgage rates in Charlotte are unchanged, but poised to worsen.
The FOMC’s next scheduled meeting is a 1-day event, March 15, 2011.
Cost of Living Reaches An All-Time High, Pressures Mortgage Rates Higher
0452 days
by Geoff Brown
in Mortgage Rates
Mortgage rates are up 0.875% since mid-November, causing home buyer purchasing power across Charlotte to fall more than 10 percent since.
Persistent concerns over inflation are a major reason why and this week’s Consumer Price Index did little to quell fears. CPI rose for the third straight month last month.
Wall Street was not surprised.
As the economy has picked up steam since late-2010, the Federal Reserve has held the Fed Funds Rate near zero percent, and kept its $600 billion bond plan moving forward. The Fed believes this is necessary to support the economy in the near-term.
Over the long-term, however, Wall Street worries that these programs may cause the economy may expand too far, too fast, and into runaway inflation.
Inflation pressures mortgage rates to rise.
Inflation is an economic concept; defined as when a currency loses its value. Something that used to cost $1.00 now costs $1.05, for example. It’s not that the goods themselves are more expensive, per se. It’s that the money used to buy the goods is worth less.
Because of inflation, it takes more money to buy the same amount of product.
This is a big deal in the mortgage markets because mortgage rates come from the price of mortgage bonds, and mortgage bonds are denominated, bought, and sold in U.S. dollars. When inflation in present, the dollar loses its value and, therefore, so do mortgage bonds.
When mortgage bonds lose value, mortgage rates go up.
Inflation fears are harming Carolinas home buyers. The Cost of Living has reached a record level, surpassing the former peak set in July 2008. Mortgage rates would be rising more right now if not for the Middle East unrest.
So long as inflation concerns persist, mortgage rates should trend higher over the next few quarters. If you’re wondering whether to lock or float your mortgage rate, consider locking today’s sure thing.
Fed Minutes Show Lower Unemployment And Higher Growth For 2011 and 2012
0457 days
by Geoff Brown
in FOMC
The Federal Reserve released its January 25-26, 2011 meeting minutes Wednesday afternoon. Carolinas mortgage rates have been in flux since.
Fed Minutes are comprehensive recaps of Federal Open Market Committee meetings; a detailed look at the debates and discussions that shape our nation’s monetary policy. As such, they’re released 8 times annually; 3 weeks after the most recent FOMC meeting.
Fed Minutes can be viewed as the unabridged version of the succinct, more well-known “Fed Statement” that’s released to markets immediately post-adjournment.
Just how much more lengthy are Fed Minutes?
- The January 25-26, 2011 statement contains 395 words
- The January 25-26, 2011 meeting minutes contains 6,916 words
If the Fed Statement is an executive summary, the Fed Minutes is a novel. And, the extra words matter.
When the Federal Reserve publishes its minutes, it’s offering clues about the group’s next policy-making steps. As an example, in the January minutes, the Fed improved its outlook for economic growth; lowered its projections for the Unemployment Rate; and removed its concern for deflation.
In addition, the Fed discussed the potential for food-and-energy-cost-induced inflation, but labeled it as a minor economic risk at this point in time.
Bond markets are mixed on the text of the Fed Minutes.
Although the Fed indicates a willingness to allow inflation to occur, it appears ready to act in case inflation goes too high. One way that the Fed responds to rising inflation is to raise the Fed Funds Rate and many economists believe this will start happening by late-2011 or early-2012.
