My Mind on Mortgages

Mortgage rates are priced slightly better today.

This morning’s Consumer Price Index (CPI) report showed that year-over-year inflation was a stagnant 1.2%.  When you back out volatile food and energy prices Core CPI grew at only .6%; the slowest inflation rate ever recorded.

Inflation is the primary driver of mortgage rates so from an interest rate perspective the report is positive.  However, as the Fed recently made it clear they are concerned about entering into a Japanese style deflation cycle which would have devastating long-term implications for the economy.  Although the $600 billion QE2 policy is receiving much criticism, in light of today’s report it might actually be well timed.

Today’s Housing Starts report showed weaker than expected activity.  I’ll temporarily shift my outlook to a floating stance but the long-term trends still suggest higher rates on the horizon.

Current outlook: floating