Where are Mortgage Rates Headed? Watch For Inflation

These days, homes are more affordable than ever as the housing market emerges from a slow winter season and mortgage rates are 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 can change in an instant.  It’s something worth watching, and also, something you need to hire a professional mortgage consultant to keep an eye out on as well.

Remember that each 0.25% increase to conventional or FHA rates adds approximately $16 per month for each $100,000 borrowed. Nothing to sneeze at, but something to be aware of.

If you’re trying to gauge whether rates will be rising or falling, I’m sorry to say, but there isn’t just one factor to look at.

One keyword to listen for is “inflation”, though. Mortgage rates are highly responsive to inflation, and this topic can swing your mortgage rate in the blink of an eye.

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 and that causes Mortgage rates to go one way – UP!

Bond Prices down, rates up – very simple.

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. This combination is driving investors to buy mortgage bonds which, in turn, is suppressing rates and keeping them lower for the time being.

Please remember that this is not going to last forever, and you REALLY need to cash in while you can – the timing to buy a home in Texas may be as good as it gets, so try to get with a great Realtor and your Texas loan officer to get started.

Tags: fha rates, inflation, texas mortgage, va rates | Category: Mortgage Rates |