By Eric Clonch, Mortgage Loan Originator, NMLS# 327193
Beverly-Hanks Mortgage Services
ASHEVILLE, NC - If you’re an observer of economic news, you’ve probably noticed that market experts and traders keep a close eye on the Commerce Department’s Personal Spending and Personal Income reports. These reports provide insight into the health of our economy, but did you know they also influence home loan rates? That’s right, personal spending can actually influence the interest rates that are available when you purchase or refinance a home.
Here’s why. It has to do with something called the velocity of money. Even though the government keeps pumping money into the system, nothing happens until that money is spent or lent – and passes from one hand to another or one business to another. The speed at which this money passes between parties is called the velocity of money.
With the job market still very sluggish, consumers aren’t spending as much money these days, and businesses are still reluctant to make investments in their business. With the present velocity at low levels, inflation remains subdued and that’s good for home loan rates. That’s because rates are tied to Mortgage Bonds and inflation is the archenemy of Bonds, so low inflation is good for Bonds and rates. However, once velocity increases, the excess money in the system will cause inflation – which is bad for rates, since even the slightest scent of inflation can cause home loan rates to worsen.
While we certainly want to see better economic recovery news in the near future, we have to remember that there’s an inverse relationship between good economic news and Bonds and home loan rates. Weak economic news normally causes money to flow out of Stocks and into Bonds, which helps Bonds and home loan rates improve. Strong economic news, on the other hand, normally has the opposite result.
Currently, home loan rates are near their historic lows, but that situation won’t last forever. Now is an ideal time to purchase a home, or refinance, before the velocity of money – and rates – change. If you or anyone you know would like to learn more about the current economic situation and how to take advantage of historically low home loan rates, then please contact Eric Clonch at (828) 654-6402 or at firstname.lastname@example.org.