Inflation Signs Point to Rising Mortgage Costs

Inflation Signs Point to Rising Mortgage Costs


Although the signs may not yet be obvious, inflation is beginning to rear its ugly head, affecting the price of commodities, food, fuel and a host of other business and consumer products. When inflation becomes evident, changes in interest rates begin to show up, something home buyers and refinancing consumers should keep in mind when shopping for a mortgage or loan.

Rising Rates

Ben Bernanke

Fed Chairman, Ben Bernanke

The federal government is loathe to see interest rates climb as long as the economy continues to be dragged down by high unemployment. Thus, the United States Federal Reserve will carefully consider its own rates which affect all other rates including mortgages. On April 27, fed chairman Ben Bernanke will be giving his first-ever press briefing in a bid to keep the public aware of monetary policy decisions.

Bernanke is expected to send a signal whether the “quantitative easing that has fueled this bull market will continue past its stated end date in June,” reports the Christian Science Monitor. The stock market may lose some of its value if Bernanke says that the June date will remain in place, but if the timeframe is extended, then the markets may stabilize.

Global Pressures

But, the stock market is only one concern and it may not affect consumers in the same way other factors could. Problems in Japan following its earthquake and tsunami which left tens of thousands dead are persisting with some technology and auto parts suppliers still unable to ramp up their factories. Automakers are also finding it difficult to hold prices in place with both Toyota and Ford announcing price increases, reflecting what is likely to become a trend of higher prices this spring, summer and fall.

Weighing against it all is the price everyone is paying for fuel. Gas prices are now averaging more than $3.60 per gallon and have doubled since President Obama took office in January 2009. The official unemployment rate is 8.8 percent with some 13.5 million people looking for work. Millions more are underemployed or have quit working, at least for the time being.

Home Loans

Mortgage rates have been trending up slightly in recent weeks, with 30-year fixed rate mortgages averaging about 5 percent. That rate is still very low, but above historically low rates seen in recent years. The housing market remains weak with many local markets still not at the bottom. Rising interest rates and sinking home prices can make home buyers too skittish to jump into the market, perhaps waiting for Bernanke’s pronouncement too in order to know what steps to take next.

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Categories: Money News

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".