The Mortgage Man

Get more out of your mortgage experience!

Monday June 30, 2008

European inflation could create problems for us here at home with Mortgages and Real Estate.

It is the last day of June and the first day of the week with news from our friends across the pond creating problems here at home.  Inflation in Europe reported for June is around 4% which is much worse than the expected forecast between 1% and 2%.  As we struggle with our own problems here with the neverending run up on oil prices and a lagging economy, investors are likely to move more money into the Euro and away from the Dollar.

What does this mean for you?  Well, first of all, the price of oil is tied to the US Dollar.  And as we have discussed in previous posts, as the dollar lags behind in the global currency markets, the weakness in the dollar continues to be a contributing factor in the price of oil.  In addition, inflationary pressures keep the FED on the hot seat about raising rates to strengthen the dollar.  While this action would be a short term problem in the real estate and mortgage industry, it would likely be a long term stimulus by strengthening the dollar, lowering the price of oil, and thereby relieving the pressure on consumers and discretionary spending.

The affect this is having on mortgage bond trading today is surprisingly positive.  Not a rally by any means, but not negative either.  My crystal ball is in the shop, so I can’t give you an intelligent answer as to why bonds are moving into positive territory based on this news.  What I can tell you is that if you are working on a mortgage loan currently, you might want to float the rate to wait and see if this market moves above current levels of resistance.

In summary, the economy is very complicated and many factors are contributing to the current uncertainty.  If you are on the fence about buying real estate until it “hits the bottom”, be aware you may lose more than you gain by waiting. Ultimately, if we are to move forward, we will need to experience a little short term pain to feel any long term gain.  You can’t make an omelette without breaking a few eggs.

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