A very succinct analysis, thanks to Larry Wallace of True North Mortgage. Even I can understand this one.
Why are Mortgage Rates Rising?
My master tells me that mortgage rates here in Bend hit their low of around 4% a few months ago . . . in October of 2010 to be exact. Since then, things have changed; in fact rates have risen almost 25% in the last week or so. Today, a 30 year fixed rate conventional loan is running at 5%.
Let’s take a quick rudimentary review (again thanks to Larry . . . I can understand him a lot better than I can my master).
- When the economy is in trouble, interest rates are increased to get money flowing. Lately, the government has “stimulated” the economy with lower rates and other complicated Fed measures that defy my humble canine vocabulary.
- When the economy does indeed start to recover, the government must “undo” the above moves . . . if not we’ll end up with “inflation.” Even my master tells me that “inflation” means higher mortgage rates.
- So here’s the big debate: can the government “undo” the stimulus and still keep “inflation” under control? Some economists think they can; others think not. My master doesn’t have a clue.
- Therefore, the markets are “spooked” about inflation . . . if they get even a “whiff” of it, surprisingly the rates start going up!
So that’s what’s happening now. There are seemingly enough “indicators” that lead economists (and the market) to feel that inflation cannot be far off.
Indicators of Recovery
Larry has been kind enough to show us what these “indicators of recovery” might be
Stock Market = up
Bank Stability and Earnings = up
Auto Sales = up
Consumer Price Index = up
Producer Price Index = up
Gross Domestic Product = up
Retail Sales = maybe
Productivity = up Costs = down
Commodity Prices = up
Corporate Debt = down
Household Debt = down
Consumer Confidence = up
There is some other stuff too. But, I’m getting drowsy; maybe time for a quick snooze.
Bottom line is that we’ve got some good things going on, but it seems that our housing market and unemployment situation (Without jobs, etc.) aren’t coming around as quickly as we’d hoped. Still enough good that the markets are spooked about “inflation” and thus our rates continue to rise.
A great time to be a buyer . . . search anonymously for homes in Bend.
