All signs point to rising interest rates. The inflationary fears have started to materialize and have affected the Bond markets. Over the next few years, Trillions of dollars will be pumped into the economy, and many fear that this will cause hyperinflation.
Because interest rates are determined by the price and yield of Mortgage Backed Securities, when consumer confidence comes back, there will be a flight away from fixed income instruments, and towards equities or stocks. In other words, money will stop flowing towards bonds, and will start moving towards other items that will more likely beat inflation.
While bonds offer a fixed rate of return and are stable, in times of inflation, your rate of return may not be beating inflation. When there is less demand, the price of the bond will go down, and the yield will go up; the yield is the interest rate. Again, this means that interest rates are headed up.
What does this mean?
Rates are still low; however, we know that they are heading up. If you know ANYONE who is looking to purchase a home or Refinance their existing home, it is time to let them know that they need to act soon. A rise in interest rates will mean decreased purchasing power and increased costs. Rates are still relatively low, and prices are still low; it is still a great time to buy a home!
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Lower home prices, but at what costs? | Joe Knows Mortgages says:
June 3, 2009 at 8:36 pm (UTC -5 )
[...] just how unforgiving the markets can be for people who choose to procrastinate. In just five days, interest rates from many lenders increased anywhere from .50% to 1.00% as fixed-income investors demanded more for their [...]