How High Will Rates Go? Linking Rising Oil Prices To Rising Mortgage Rates and Not Dissimilar from Bernake’s comments this morning!

By mark-slade March 1, 2011

How High Will Rates Go? Linking Rising Oil Prices To Rising Mortgage Rates

Rising oil prices means rising mortgage rates
Political unrest across the Middle East is putting oil prices on the move. Brent Crude has spiked 12 percent since Valentine’s Day, pushing past $110 per barrel for the first time in 2 years.
It’s awful news for mortgage rate shoppers.

Higher Oil Prices Lead To Higher Mortgage Rates

When oil prices rise, they tend to take mortgage rates with them. It’s a self-reinforcing cycle that repeats, over and again.
First, there’s the rise in oil prices. This can happen for any number of reasons:

  1. Demand for oil increases because of expanding economies
  2. Supply of oil falls because of reduced drilling capacity, or abrupt disruption
  3. The U.S. dollar loses value (because oil is bought/paid for using U.S. dollars)

As oil prices rise, the cost of “doing business” rises, too. This is intuitive — energy costs are an input for manufactured items, and just the cost of keeping the lights on all day goes up. Before long, business profits shrink.
Meanwhile, as that’s happening, homeowners experience rising heating and cooling costs, plus higher prices at the gas pump. In addition, food costs rise because it’s more expensive to get food from the farm to the supermarkets. Disposable income shrinks.
Then, the cost pressures on business and households converge.
Businesses raise their prices to make up for rising costs; households bemoan rising costs and demand higher wages. Higher wages increase business costs, and the cycle restarts.
This, my friends, is inflation.

Gas Prices Are Rising. Lock Your Mortgage Rates.

The cycle of inflation has started. Actually, it started a long time ago. It started when the economy sank so low that the Federal Reserve built the ultimate inflation petri dish of:

  1. A Zero percent Fed Funds Rate
  2. Hundreds of billions of dollars in bond market support
  3. A unwavering message that the Fed Funds Rate will stay low for “an extended period”

Today, food costs are rising, gas prices are rising, and the cycle is gaining speed.  Mortgage rates are up by about 1 percent since November. They’re poised to move higher.
You may have missed the bottom for mortgage rates in your market, but today’s rates are still pretty terrific compared to what you’ll see come springtime.
It’s time to cut your losses and lock your mortgage rate.

Your Next Step : Get A Rate Quote

To get a mortgage rate quote or talk about inflation, call or click to email me and I’ll walk you through it. I like to work with my blog readers and I think you’ll find my rates as low as they come.
It won’t be long before inflation kicks into a higher gear, when it does, mortgage rates will soar.