Gas Prices

As Gas Prices Rise, Mortgage Rates Are Rising, Too

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.

Gas Prices

Falling Gas Prices May Be Linked to Lower Mortgage Rates

If you’ve been driving lately, you’ve noticed that the cost of a fill-up has gone down. 

According to GasBuddy.com, retail gas now costs $2.52 per gallon, on average nationwide.  Since peaking in mid-June, gas prices are down 6 percent.

For the economy, this is an important story. 

Because Americans are spending less at the gas pump, they’re left with additional dollars to spend in other ways including for everyday items like food and shelter, plus for luxury items, too.

Consumer spending accounts for a huge part of the U.S. economy and falling gas prices give economists one more reason to believe a full economic recovery may be close. 

With Back to School season around the corner and the holidays looming, a mini Wealth Effect could propel the economy forward and out of recession.

Falling gas prices can be good for mortgage rates, too. 

Because rising gas prices are associated with inflation and inflation is linked to rising mortgage rates, the opposite is often true, too.  When inflation pressures recede, mortgage rates tend to fall.  And that’s what we’re seeing in today’s market. 

As gas prices have fallen, mortgage rates have, too.  As a result, home affordability is up.

(Image Courtesy: Department of Energy)

Gas Prices

What’s Ahead For Mortgage Rates This Week: May 18th

After a dreadful start to the month of May, mortgage markets improved last week, pushing mortgage rates lower overall.

It was the first week since late-April in which mortgage rates fell.

The biggest reason rates improved last week was because the economic optimism that was responsible for the stock market’s 30% gain since March faded somewhat.

Retail Sales came in weaker-than-expected as did Initial Jobless claims. Both of these data points show that the economy may not be recovering as quickly as investors had wanted to believe.

Combined with gas prices ballooning more than 10 percent over the last 3 weeks, it’s clear that consumer spending will be muted this summer and into fall.

Consumer spending is important because it accounts for two-third of the economy. If it’s slowed for any reason, the economy is less likely to emerge from the current recession as quickly as had been anticipated.

This is good news for mortgage rates because a slow economy tends to draw investors out of stocks and into bonds, including the mortgage-backed kind. More mortgage bond demand leads to higher bond prices and, therefore, lower bond yields and mortgage rates.

This week, there isn’t much data to watch and, because of Memorial Day, trading will be very light towards Thursday and Friday.

It’s during “calm” weeks like this that mortgage rates can make huge movements up or down. With no official announcements against which traders can make bets, every piece of news is a surprise.

If you’re still floating a mortgage rate, take some risk off the table by locking in this week.

Gas Prices

Your Local Gas Station May Have Clues About Tomorrow’s Mortgage Rates

The retail price of gasoline is rising nationwide, now up 30 percent since the New Year.

It’s a similar run-up to what we’ve seen for retail gas prices in each of the last 5 Spring Seasons.

For people trying to time the mortgage market’s bottom, clues about the future of mortgage rates may be at the local gas station.

Rising gas prices are indicative of the rising cost of energy and, indeed, crude oil is closing in on its 2009 highpoint. As these energy costs grow, so do inflationary pressures on the U.S. economy.

Inflation, of course, is awful for mortgage rates. When it’s present, mortgage markets deteriorate and rates tend to rise — often sharply and with little advance warning.

So, for today’s homebuyers-in-process and would-be refinancers, prices at the pump may foreshadow bad news for the future of housing affordability. Even a modest, quarter-percent increase would have a palpable effect on payments, adding $372 in annual costs to a $200,000 home loan.

Since last week, gas prices are already up by 10 cents per gallon.

Gas Prices

Watch Out for Mortgage Rates When Gas Prices Rise

Don’t look now but oil prices are climbing.

This should worry today’s home buyers and would-be refinancers because some of the same forces that helped to push crude past $50 for the first time in 4 months also cause mortgage rates to rise.

March 18, the Federal Reserve committed an additional $1.15 trillion to support the economy.

Since the announcement, investors have questioned whether the Fed is purposefully spurring inflation. The Fed’s total debt purchases now total $1.75 trillion.

And to finance its purchases, the Federal Reserve is printing new money, devaluing the U.S. dollar along the way. This then leads to inflation which, all things equal, causes oil prices to rise, gas prices to rise, and mortgage rates to go with them.

As we’ve seen the last few summers, oil prices and mortgages seem to touch their yearly high points while the weather is warmest.

(Image courtesy: The Wall Street Journal)