Market Insight
As Gas Prices Rise, Mortgage Rates Are Rising, Too
October 22, 2009 by James K Barath, CMPS · Leave a Comment
With crude oil at its highest levels since October 2008, retail gas is up 8 cents per gallon this week.
It’s bad news for home buyers and mortgage rate shoppers. The same force that’s driving oil higher is linked to rising mortgage rates.
We’re talking about the weakening U.S. Dollar which is now at its worst levels versus the Euro in 15 months.
Crude oil is priced in U.S. dollars, by the barrel. When the dollar loses value, more of them are needed to buy the same barrel of oil. As a result, predictably, the price of crude oil goes up.
Now, there are other reasons why crude oil is rising, but the fading U.S. dollar is one of the major ones and it’s why we’re addressing it.
The dollar has a similar impact on mortgage rates.
Mortgage rates are based on the price of mortgage bonds that – like crude oil – are also denominated in dollars. As the dollar loses value, so do mortgage bonds. This causes demand for bonds to drop and prices on bonds to fall.
Because bond prices and bond rates move in opposite directions, mortgage rates rise and this is precisely what’s happening on Wall Street today.
Since touching a 5-month low in early-October, mortgage rates have tacked on as much as 1/2 percent, depending on the product. Moreover, with the dollar showing no signs of a rebound, the upward pressure on rates should continue.
If you’re trying to time the market bottom, you may have already missed it. Consider locking your mortgage rate before rates increase even more.
And your everyday signal that rates are rising? Just check your price at the pump. If gas prices are up, it’s likely that mortgage rates are, too.
Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.
About the Author: James K Barath is a Certified Mortgage Planning Specialist, qualified liability advisor and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James Barath today for your Borrow Smart Analysis - the CALM Approach to Borrowing ! His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy! 