Falling Dollar, Rising Mortgage Rates
The rate of “Inflation” plays a pivotal role in the final mortgage rate percentage quoted for home loans. Mortgage lenders and investors will expect a certain pre-defined rate of return after inflation, to cover their anticipated profit, and to account for risk of default on the mortgage coupled with insufficient home equity to cover the original note.
This is where the dollar enters the picture. The almighty dollar has been declining steadily for six years against other major currencies, undercutting its role as the leading international banking currency. The long slide is fanning inflation at home and playing a major role in the run-up of oil and gasoline prices everywhere.
A Falling dollar makes everything made in America near dirt cheap to many foreigners. Meanwhile, American consumers, both those who travel and those who stay at home, are seeing big price increases in energy, food and imported goods. The dollar has lost roughly a quarter of its purchasing power against the currencies of major U.S. trading partners from its peak in 2002.
Since oil is bought and sold in dollars worldwide, the devalued dollar has made the recent surge in energy prices even worse for Americans, leading to $4 gasoline in the United States. Analysts suggest that of the $140 a barrel that oil fetches globally, some $25 may be due to the devalued dollar. Further declines in the dollar will add to oil's appeal as a commodity to be traded.
The only thing keeping current mortgage rates near all-time lows is the bond market. Luckily for mortgage shoppers, mortgage rates are made up of US bond yields (10-Year Treasury Yield) plus a mark-up for lender return (anticipated return + risk factor + rate of inflation). Despite the fact that mortgage lender mark-ups are historically high, we are still experiencing low mortgage rates.
The national average 30-Year fixed mortgage rate is currently in the 6.25% range, despite the unusually high lender mark-up averaging approximately 2.3%. Now, without the current lender risk and high inflation, the lender mark-up would be more in the 1.5% range historically, and result in current mortgage rates for 30-Year fixed rate mortgages at 5.5%!!!
The impact of the falling dollar is not always visible to the average consumer. Not like the big numbers on gas pumps that give stark evidence of price levels. Since the falling dollar has a significant impact on inflation, and inflation has such a large role in the make-up of mortgage rates, mortgage rates shoppers should keep an eye on the value of the dollar. For the sake of continued low mortgage rates, we hope The Buck Stops Here!
May the Mortgage Rates be with You!
Refinance Tool Box
This is where the dollar enters the picture. The almighty dollar has been declining steadily for six years against other major currencies, undercutting its role as the leading international banking currency. The long slide is fanning inflation at home and playing a major role in the run-up of oil and gasoline prices everywhere.
A Falling dollar makes everything made in America near dirt cheap to many foreigners. Meanwhile, American consumers, both those who travel and those who stay at home, are seeing big price increases in energy, food and imported goods. The dollar has lost roughly a quarter of its purchasing power against the currencies of major U.S. trading partners from its peak in 2002.
Since oil is bought and sold in dollars worldwide, the devalued dollar has made the recent surge in energy prices even worse for Americans, leading to $4 gasoline in the United States. Analysts suggest that of the $140 a barrel that oil fetches globally, some $25 may be due to the devalued dollar. Further declines in the dollar will add to oil's appeal as a commodity to be traded.
The only thing keeping current mortgage rates near all-time lows is the bond market. Luckily for mortgage shoppers, mortgage rates are made up of US bond yields (10-Year Treasury Yield) plus a mark-up for lender return (anticipated return + risk factor + rate of inflation). Despite the fact that mortgage lender mark-ups are historically high, we are still experiencing low mortgage rates.
The national average 30-Year fixed mortgage rate is currently in the 6.25% range, despite the unusually high lender mark-up averaging approximately 2.3%. Now, without the current lender risk and high inflation, the lender mark-up would be more in the 1.5% range historically, and result in current mortgage rates for 30-Year fixed rate mortgages at 5.5%!!!
The impact of the falling dollar is not always visible to the average consumer. Not like the big numbers on gas pumps that give stark evidence of price levels. Since the falling dollar has a significant impact on inflation, and inflation has such a large role in the make-up of mortgage rates, mortgage rates shoppers should keep an eye on the value of the dollar. For the sake of continued low mortgage rates, we hope The Buck Stops Here!
May the Mortgage Rates be with You!
Refinance Tool Box
posted by Jim Bisnett at
9:59 AM
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