“INFLATION IS AS VIOLENT AS A MUGGER, AS FRIGHTENING AS AN ARMED ROBBER, AND AS DEADLY AS A HIT MAN.”
~ Ronald Reagan.

And although you might not describe the effects of inflation in such strong terms yourself…rest assured that the effects of inflation have crept into your home, your gas tank and your wallet. And inflation is also the nemesis of Bonds and therefore home loan rates, because just like inflation erodes the value of the dollars you spend, inflation erodes the value of the fixed return a Bond provides. And last week, Bond pricing worsened on news of inflation, causing home loan rates to move higher by about .25% across the board and reaching the highest levels seen in weeks.

The week was shortened by the Memorial Day holiday, but right out of the gates, inflation concerns abounded. The Consumer Confidence Report indicated that consumer inflation expectations are at an all-time high…meaning that consumers are seeing inflation as a real threat to their own financial situation. Rising energy costs and worldwide inflation fears continued to pummel Bonds lower – in fact, so low that they moved below a tough technical floor of support at the 200-Day Moving Average. This is important because Bonds have made a decisive cross over the 200-day Moving Average on only three separate occasions within the past three years. This means that barring a timely reversal, we are likely seeing a shift in the market towards higher home loan rates.

Friday brought a little good news on inflation, as the Core Personal Consumption Expenditure (PCE) Index showed that inflation does remain within the Fed’s comfort zone. While Bonds and home loan rates improved somewhat on the news, the trend for the week was definitely worse overall, as the big picture on inflation cost Bonds and home loan rates some hard earned ground.

LOOKING FORWARD TO YOUR STIMULUS CHECK…AND WISHING THE SIZE OF IT COULD BE “INFLATED?” RETAILERS HAVE COOKED UP SOME INTERESTING SPECIALS TO DO JUST THAT, SHOULD YOU DECIDE TO SPEND YOUR CHECK ON THEIR GOODS OR SERVICES. TAKE A LOOK AT THIS WEEK’S MORTGAGE MARKET VIEW FOR SOME EXAMPLES OF WHAT CREATIVE RETAILERS HAVE IN STORE FOR YOU.

Source: The Mortgage Market Guide