High oil prices are derailing the mortgage market this week, taking an almost-vertical path higher. Since mid-February, prices are up by 50 percent.
Rising oil prices can be a threat to the U.S. economy because with every extra dollar that Americans pay to energy companies, there is less money available for every other company that makes up our national economy.
Strangely, it comes at a time when the "other" companies need it the most -- their costs of operating are rising, too.
So, businesses are faced with a tough choice and both options prove poor for mortgage rates.
- Keep prices level and suffer smaller margins (and profits)
- Pass higher costs onto consumers in the form of higher prices
If profits suffer, job cuts and a weak corporate spending can undermine an economic recovery. If higher costs are passed on, it leads to inflation and that devalues the U.S. dollar and mortgage bonds.
This is why mortgage rates have spiked along with oil prices this week. And, when oil prices level off a bit, we can expect that mortgage rates will, too.
Crude oil is up 1.8 percent this morning.
(Image courtesy: Wall Street Journal Online)
