Mortgage rates spiked a bit higher several weeks ago when investors sold out of their bond positions and bought stocks. This trend continued for about a week, reflecting the volatility of the stock market. In spite of the stock market recovering some value, however, and the fact that the Consumer Price Index inflation data was a little better than expected, mortgage rates moved slightly lower recently.

One of the most widely accepted forms of measuring monthly inflation trends, the Consumer Price Index (CPI), was found to be 1.4 percent higher in January 2016 than it was last January. The CPI is currently at its highest level since October 2014.

To get the clearest possible idea about the latest trends, economists tend to prefer the Core Consumer Price Index. The Core CPI, which excludes food and energy costs, is currently at its highest level since June 2012. Moreover, it has increased by more than 2 percent since last year.

So what does all of this mean?

Simply put, this could be the beginnings of an economic climate that is favorable for inflation. An unfortunate side effect of inflation is that mortgage rates tend to rise along with it. This is partially because inflation devalues the dollar. In an environment where inflation is present, our money is suddenly worth less than it used to be. Of course, this has an impact on everything that is affected by the U.S. dollar, including mortgage-backed securities.

Inflation triggers a decrease in demand for mortgage-backed securities. It may seem like a no-brainer, but choosing a product that’s projected to lose its value over time is not exactly a preferable strategy for most investors. As demand for mortgage-backed securities falls, prices fall as well. After that, the corresponding yields associated with these products begin to rise, and this translates into a higher interest rate for the various loans that are available to consumers.

Although some factors such as a stronger dollar and lower oil prices have joined forces to keep inflation down over the past year, costs have increased and the service sector has been strong. The prices that people are paying for medical treatments and housing also have been on an upward climb for the past year. This indicates that the pace of inflation could likely begin to accelerate.

Mortgage rates are still at historic lows. In fact, the average that people were paying on February 23, 2016, for a 30-year fixed rate loan was around 3.64 percent, but that could change quickly. Consider that the U.S. economy is strong, in spite of the recent volatility of the stock market. The housing market has experienced a great deal of appreciation, construction has remained on an upward tick, and job growth has returned.

All of these factors are making people speculate about the idea that the Fed could intervene as soon as next month, and the unprecedented opportunity that exists right now to get a great loan with a low interest rate could suddenly vanish.
If you have been shopping for a loan or considering a move, the best time to act could be now. For information about the various types of loan products that are available to you, please contact me at the number below.   

Patrick Stoy (NMLS Numbers 39527 and 39166) has 16 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or (910) 509-7105.