Can the Cost of Gas Impact Bay Area Interest Rates? News on Inflation

Can the Cost of Gas Impact Bay Area Interest Rates? News on Inflation

Consumer Price Index (March 2009 - February 2011)

Is the cost of Gas going to affect home buying decisions in the Bay Area? Maybe…

Inflation pressures are mounting in the United States. And, Friday, the Consumer Price Index should prove it.

Cost of Living

More commonly called “The Cost of Living Index”, CPI measures cost changes in the typical items bought by American households. Among others, CPI measures goods and service in apparel and recreation; medical care and education; and housing and transportation.

The March CPI data is expected to show an increase in the cost of living for the 17th straight month — a reading that would take CPI to an all-time high.

If you’ve filled your gas tank, sent a child to school, or shopped for groceries, you’re likely not surprised. Gas prices are reaching $4.50 a GALLON here in the Bay Area. With that said household budgets have been squeezed from all angles and reaching the end lately. The dollar’s purchasing power is waning.

This is inflation, defined. And a weaker U.S. dollar is bad for mortgage rates.

The connection between the U.S. dollar and mortgage rates is direct. When inflation pressures rise, mortgage rates in Dublin and Bay Area tend to rise, too, because mortgage rates are based on the price of mortgage-backed bonds — a security bought, sold and paid in U.S. dollars

Inflation, in other words, renders mortgage bonds less valuable to investors, all things equal, so investors sell them as inflation pressures grow. More sellers leads to lower prices which, in turn, causes mortgage rates to rise.

Home Buyers

It’s why March’s Cost of Living data is so important to rate shoppers and home buyers. Higher levels of CPI can harm home affordability, and stretch your household budget uncomfortably. Will this affect WHERE you consider buying a home? It may; in fact more and more Gen Y buyer entering the home market are factoring location more and more into the purchase decision. i.e. Public transportation proximity to BART etc.

As Memorial Day approaches, gas prices are projected to spike, offering little relief from the inflationary pressures in the economy. It’s one reason why mortgage rates should trend higher over the next few months.

If you’re wondering whether to lock or float your mortgage rate, consider locking in. At least today’s rates are a sure thing. Tomorrow’s rates and cost of living could be much higher. As a Mortgage Broker at Vintage Mortgage Group of Pleasanton I specialize in advising first time home buyers and investors in making decisions and factoring in there overall situation. Contact me below with what your goals are and we can plan form there!

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