The American Consumer keeps spending. This morning, the monthly Retail Sales report showed a larger-than-expected jump. Even after stripping out elevated gas prices, the sales increase was more than double the expected amount.
The economy surges ahead, fueled by everyday spending, and this does not bode well for the future of mortgage rates.
The recent run-up in mortgage rates is largely from inflation fears. With inflation, investors' dollar-denominated securities have less value over time because the dollar itself is worth less.
Runaway consumer spending exacerbates the potential for an overheated economy and that is why today's figures are slightly troubling. Each time you and I make a purchase, we are (in a small way) contributing to the economy's growth.
Inflation, of course, is the enemy of bonds and your mortgage rates are determined by the prices of mortgage bonds. Inflation erodes the value of the bonds and that is what causes mortgage rates to increase.
As a homeowner, higher mortgage rates may depress your local market because fewer home buyers can qualify for home loans, lowering overall demand.
Rates are up by as much as 0.875% in the past 3 months.
