Inflation heats up!
May 20, 2008
Inflation is on its way up as evidence in the recent government releases reports regading PPI and CPI. The core level of inflation in the PPI report has risen over six percent in the past twelve months and .4 percent for the month of April. Inflation is very dangerous for mortgage rates as this challenges the net return on a mortgage bond and typically results in investors wanting a higher yield, thus driving up mortgage rates.
The economy has slowed down considerably in 2008, but the market is clearly struggling with rapidly rising oil prices that are effecting everything from travel to food prices. As inflation continues to increase the pressure will mount on the Federal Reserve to begin considering lowering the rate on the Fed Funds rate. The Fed has been agressive in cutting the Fed Funds and Fed Discount rate this year in an effort to stabalize the credit markets and spur home buying. The dollar has fallen sharply over the past 12 months and this is also having an effect on oil prices and inflation. Mortgage rates for purchase and refinance home loans are firmly near six percent for long term fixed mortgages and these rates have held firm since the early February but could be on the way up with more pressure from inflation.
Refinance Rates Moving Up!
April 20, 2008
This year has provided a unique opportunity for home owners to refinance their mortgage into fixed mortgage rates at levels last seen in 2003. In January of this year fixed mortgage rates reached their lowers levels of the past five years and were around 5.25% as the yield on the ten year bond dropped to 3.33%. This brief opportunity to lock into near historical low levels did not last long as mortgage rates jumped shortly their after.
Since early January the market has been under enormous stress following further fallout in the credit markets. Mortgage interest rates have been under pressure due to the tightening of the credit markets and the spread in mortgage securities has increased as investors are looking for a larger premium to hold mortgage loans. This larger spread has elevated the rates on mortgages, even as the yiled on bonds has declined with the turbulent movements in the stock market.
The market is now under further strain as rising oil prices are adding enormous strain on the markets through inflationary pressure. The yield on the ten year bond has moved well above the January lows and mortgage rates are now trending above six percent. The Federal Reserve will be meeting again in a few weeks and may further reduce the Fed Funds rate which would be good for home owners with adjustable raete mortgages or home equity loans, but it is unlikely to aid in helping bring down the rates of fixed rate mortgages. Those homeowners who have been on the fence when considering a refinance should explore locking into a fixed mortgage or securing a fixed mortgage with a float down option.