High oil prices mean low interest rates

This excerpt is taken from the weekly newsletter I received from one of my favorite loan officers, MaryAnne Coffman,

Every cloud has a silver lining. That popular idiom is one way to look at the headlines last week, both here in the U.S. and overseas. Read on for the details and what they may mean for home loan rates.There was good news on Friday as Consumer Sentiment rose to 75.3, which is the best level since February of 2011. However, this news was tempered by the rise in oil prices that we have been seeing. Theres a good side and a bad side to higher oil prices.On the one hand, high oil prices are very detrimental for the fragile U.S. economy, as consumers have to put more of their discretionary dollars into their gas tanks…meaning they have less to spend elsewhere. High oil prices are also inflationary as the added shipping and material costs apply upward price pressures on Producer or Wholesale goods that either have to be absorbed by the producer, thus hurting profits and the ability to expand or hire. Or the added costs get passed onto to the consumer…a la a rise in consumer inflation.

The silver lining is that high oil prices could actually be good news for home loan rates, as the dampening effect on economic growth produces a sluggish economic environment in wh ich Bonds (including Mortgage Bonds, to which home loan rates are tied) thrive. This is an important topic to continue watching in the weeks and months ahead.

In silver linings overseas, after seemingly endless negotiations, Greece, investors and central bankers came to an agreement to provide Greece with 130Billion Euros ($172 Billion) in financial aid. This will help the country fund itself through March and into the future… as long as it institutes economic reform, austerity measures and meets deficit targets. Any deal with Greece will be very tough to implement and a default could still occur…which makes this another important topic to keep close watch on.

Between some of this uncertainty from overseas being lifted, a lower unemployment rate, and better than expected economic reports, home loan rates havestruggled to improve beyond some of the best levels seen over the past two weeks. But yet another silver lining is that home loan rates remain near historic lows, and now continues to be a great time to purchase or refinance a home.