Mortgage markets have turned their attention back to the U.S. economy this morning, causing yesterday's rate improvements to unwind a bit. Rates had fallen Monday after the Federal Reserve and U.S. Treasury's joint announcement in support of Fannie Mae and Freddie Mac. Today, it's the data that is taking center stage.
Most notably, the U.S. Dollar is trading at an all-time low versus the Euro and other currencies.
This is a negative for mortgage rates because American homeowners repay their mortgage interest in U.S. dollars. When the dollar loses value, so does the value of those interest payments so mortgage rates have to increase in order to attract new investors.
Another reason that mortgage rates are rising this morning is that the Producer Price Index (PPI) for June registered much higher than was expected, registering its largest one-month gain since November 2007.
PPI is a lot like the Cost of Living index for Americans, except that it measures the operating costs for businesses operating in the United States. When business costs increase, those costs are often passed onto consumers and this is why a rising PPI is considered to be inflationary.
As the chart shows at right, PPI has been on a tear for the better part of 18 months now and inflation -- like a weakening dollar -- causes mortgage rates to rise.
Monday's rate improvements haven't completely erased, but today's action reminds us that mortgage markets wait for no one. If you see a rate that fits your budget, you can't go wrong by locking it.
(Image courtesy: The Wall Street Journal)
