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Sandra Voss' Blog

By Sandra (Voss) La Flamme | Agent in 34242

Bond and Home Loan Rates Affected by International Volatility In Greece

Home loan rates still remain near some of the best levels we’ve seen this year, and it’s important to take advantage of these levels while they remain. If you have been thinking about purchasing or refinancing a home -- now is a good time to put a pencil to paper.  If the price of the median-priced home goes up by $5,000 (from $224,400 to $229,400), the effect is similar to a 25 basis-point interest rate hike.  Conversely, when you take advantage of  a good interest rate – you affect/lower the cost of your home.


Reports show that last week’s Initial Jobless claims fell 16,000 to 414,000 and while the decline is good news, this is the tenth straight week that Jobless Claims have remained back above the 400,000 level. My Wells Fargo resources tell me that weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.


International news in Greece shook things up.  One reported impact of their volatility is that it has caused some flight to safety buying of US Dollar denominated securities like Treasuries and Mortgage Backed Securities, upon which home loan rates are based. This helped Bonds and home loan rates last week, which I believe was a good thing, since signs of inflation also heated up last week and Bonds and home loan rates would have likely worsened on that inflation news.


Inflation is the arch enemy of Bonds and home loan rates, like Carbs to a Supermodel -- because inflation erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. Last week, both the Producer Price Index (which measures inflation at the wholesale level) and the Consumer Price Index (CPI) were both reported to be more intense than expected, with the Core CPI rising by 0.3%.  That was the largest monthly increase in three years.


The Fed continues to say that the increase in inflation is short in duration, temporary or not persistent --  more signs of inflation in the coming weeks and months could hinder Bonds and home loan rates from further improvements.


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