Knoxville Home Buyers want to know why the Mortgage Rates are UP?

Non-Farm Payroll Report June 2009Worried about the Rising Rates?

If you have been in the Knoxville housing market. You have noticed the rates have been climbing adding thousands of dollars to the annual cost of homeownership.

To the casual observer, the moves may seem random.  There’s a reason this is happening, however.

It starts with inflation.

As an economic force, inflation erodes the value of the U.S. Dollar.  Left unchecked, it drives up the Cost of Living as each dollar “buys less” at the supermarket, gas station, or anywhere else.

But with respect to mortgage rates, inflation’s impact is more immediate.  Because inflation devalues the dollar over the long-term, it renders long-term mortgage bonds a less attractive investment for traders.

If bond investors are repaid in U.S. Dollars, after all, it would make the investment worth less if the dollar is in an inflationary freefall.

Therefore, in situations when inflation is likely to present, we find that traders often sell out of their mortgage bond positions which, in turn, drives down the bond prices.  Then, because bond yields move in the opposite direction of bond prices, rising rates are the inevitable result.

Lately, Wall Street is fearing inflation for a number of reasons:

  1. Job losses are slowing, adding to consumer spending expectations
  2. Gas prices have risen 41 days in a row
  3. The federal government is increasing the money supply

These 3 factors — plus a few others — are all coming to a head around the same time and traders are getting defensive with their portfolios.  As a result, they’re selling their mortgage bond positions and it’s driving mortgage rates higher.

Rates may continue to trek toward 7 percent through July and August, or they may retreat toward 5 percent.  We can’t know for sure.  What we can know, though, is that volatility in rates should continue until the economic picture gets more clear. That could be next week, or next year.

For now, be ready to lock at a moment’s notice.  Mortgage rates are changing quickly.

If you are in the market for a home and waiting for the Knoxville real estate to hit bottom I think we are there or very close. Be aware of the mortgage rates and the impact they can have on your buying power.

Feel free to search for your new home on The Big Orange Press. Don’t forget about my Buyer 411 Program that is available to you to make your home search easier.

Thanks for stopping by the Big Orange Press and if I can be of any help to you feel free to contact me at 865-696-9002 or Rick@TheBigOrangePress.com

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