If the presence of inflation causes mortgage rates to rise, then the absence of inflation should cause mortgage rates to fall. And, in most markets that’s true.
Today, it’s not.
Despite a deep dip in consumer prices not seen since 1947, mortgage rates are inching higher this morning.
Higher mortgage rates make homes less affordable to home buyers.
The main reason why rates are rising today is that the Cost of Living didn’t just ease last month — it plunged. In fact, the monthly drop was so severe that Wall Street now questions whether this summer’s record-breaking inflation will lead to equally-strong deflation this winter.
In economic terms, deflation is the opposite of inflation — it’s when prices and wages chase each other lower. The two can be equally bad for the economy. What’s often best for Americans are moderate, steady readings.
Because of the rapid decline, markets fear that Consumer Prices may have swung way past moderate in October and started a downward spiral. As always, however, market opinions can change quickly and when they do, they usually take mortgage rates with them.
(Image courtesy: The Wall Street Journal Online)