| It’s back to the basics this week, so if you’re a long time subscriber, bear with me. The major force in interest rate movement is inflation. An investor has to recoup what inflation takes away from their future dollar value PLUS make a profit. They can’t ignore it. So as inflation goes up, rates go up. It’s like the tide – nothing stops it. Economic scares (Eurozone melt down, stock market drops, etc) affect rates momentarily like a storm passing over a harbor. Boats go up and down, but the storm passes. Most people I talk to confirm that we are in for a double dip recession, though no one knows how severe it will be, so our ‘storm’ may continue for a while. But it looks like inflation is slowly gaining strength and the tide is rising.
The consumer price index (CPI) came out this week with housing costs, one of the major anchors that has kept rates down, starting to rise. This is seen in the rental market. Vacancies are down and rates are going up. Eventually this will spill over to housing. But for now, with rents and other broad based aspects of the CPI starting to rise, you can see inflation coming. My chart shows a steady upward line for the CPI going from approximately ½ % to almost 4% in 2011 (the core has gone from ½ % to approx. 2%). It’s a telling sign.
There IS a limited window of opportunity for low rates while the economy still struggles, but the tide of rates is rising. Now IS the time by buy.
This week Freddie Mac’s 30 yr. fixed rate survey came in at 4.09% depending on program, credit and points.
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