To listen to the "Experts" on CNN, MSNBC, CNBC, Fox, and the Wall Street Journal's morning radio report -- you would think we were in mortal danger. One anchor asked the expert, "Is it too late to refi?" -- and she paused like she didn't know what to answer. WSJ was talking about a "mortgage bubble."
What really happened?
Over the last month, interest rates went up a quarter of a percent.
OH...MY! The sky is falling!" (sarcasm).
Analysis:
The Chinese did a big thing, and yes, it will effect long-term interest rates such as mortgages. They began the process to let their currency float. Not completely, not yet. But over time it will cost more dollars to buy the Chinese Yuan.
That means all the cheap products currently manufactured in China will start to cost more. That's inflation.
As we've mentioned before, the cost of energy has been going up, too. You've noticed it at the gas pump. The price of oil per barrel peaked around $62 per barrel, bounced back down and around a little, and has been gradually climbing for the past week to about $58 per barrel. That's inflation.
The economy is doing better than last year, though only slightly. Consumer confidence is up, employment is up, retail spending is up, and even businesses are spending. When the economy picks up, there is less price pressure...and prices tend to go up. That's inflation.
And...
...the stock market is showing gradual sustainable growth.
All of these are indicators that effect where investors put their long-term money. If they fear inflation in the future, they want a higher return on their money. Interest rates rise.
Mortgage rates rise.
A year from now, interest rates will likely be higher than they are now, but not necessarily.
Alan Greenspan has been rising short-term rates for a long time. While that doesn't directly effect long-term rates, it is supposed to put a drag on the economy. That slows growth (hopefully) and slower growth means less upward pressure on interest rates. Plus, rising energy prices can be BOTH inflationary and a drag on the economy.
Interest Rate Future
A month ago, we predicted interest rates would increase, but less than half a percent.
This month we predict the same thing, though there is more danger in a quicker upward movement than before.
If you're buying a house or refinancing, in this environment we recommend that you "lock in" your interest rate. Make sure to build in a buffer so that, if you don't close in time to meet your lock, you still have your interest rate.
In the past, mortgage rates have moved up suddenly. We don't expect that now, but you never know. Investors tend to get stampeded like a herd of cattle on "Rawhide" even when there is no logic behind what they do.
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