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.
How could Yahoo stock effect mortgage rates
May 5, 2008
The stock market could be under pressure from the fallout of the Yahoo & Microsoft merger. So what does this have to do with mortgage rates? The connection is strictly tied with investment dollars and decisions. When the stock market is doing well and investors are purchasing equities you tend to see mortgage rates increase as investors pull their money out of the safer bond market and invest in equities such as stocks.
The flipside of this analogy is that when investors are concerned about the direction of their equity investments or perceive higher risk in the stock market they tend to invest into the bond market. When this happens you tend to see mortgage rates decrease. Their is not always a direct correlation between the ten year bond and mortgage rates but this is a common index that investors follow when they are trying to follow the direction of which mortgage rates are heading.
Home owners or potential home owners who are shopping for a mortgage and must determine whether or not to lock or float their interest rate can use the stock market to help gauge what direction interest rates are heading but should be cautious that no one can predict where rates are moving and economic and investor news comes out on a daily basis that can change the markets direction.