Inflation Worries Cause Mortgage Rates to Rise
Below is a MRR and PLR article in category Finance -> subcategory Mortgage.
Inflation Concerns Drive Mortgage Rates Higher
Summary:
Concerns about rising inflation and consumer spending have led to an increase in 30-year mortgage rates, now exceeding 6 percent. The average rate has climbed to 6.17 percent in some markets from less than 5.96 percent just three weeks ago.
Article:
Recent reports highlighting a surge in consumer spending and inflation in November have prompted major lenders to increase the 30-year mortgage rates to over 6 percent. The average rate has reached 6.17 percent in certain areas, up from below 5.96 percent just weeks earlier.
Analysts attribute this rise in mortgage rates to inflation concerns, which have caused long-term bond yields to climb. This connection impacts mortgage rates directly. Many experts also predict a slowdown in consumer spending in the coming months due to ongoing worries about the housing and credit markets.
The housing market slump is largely because sub-prime credit is becoming harder to secure in many regions. This has resulted in an excess of available homes, a situation expected to worsen as lending to at-risk borrowers becomes even more restricted. Credit analysts anticipate that continued inflation and consumer debt concerns will lead major lenders to adopt stricter credit standards.
After nearly five years of robust activity, the housing market is experiencing a profound downturn. November saw the steepest decline in home sales in 12 years, with sales down nearly 9 percent from the same period last year and a staggering 34.4 percent drop compared to 2005.
Adding to the upward pressure on mortgage rates are issues in foreign housing markets. In December, the UK housing market saw prices fall for the second consecutive month, with a 0.5 percent decline. This reduced the annual growth rate to around 4.8 percent, the weakest in almost two years. These housing and credit concerns led the Sterling to hit a record low against the Euro in late December.
The UK is also facing recession fears, similar to those in the US. Analysts do not foresee an easing of the housing crunch in 2008 and worry that the US credit crisis might negatively impact the UK. While the sub-prime market influences the US, affordability issues are causing UK housing market concerns.
With the credit crunch extending both in the US and abroad, a recovery in sales is not expected before 2009. Mortgage lenders are cautious, aiming to protect their financial assets by taking on less risk, which results in higher mortgage rates, especially for long-term loans. Industry experts note that given the current housing surplus, it would take 9.3 months to clear the backlog.
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