Here at Palm State Mortgage Company, we have noticed that many house hunters get pre-occupied in only one piece of economic data: the current interest rate.
In this week’s blog, we will show you that this is just as myopic as Mr. Magoo’s perception of reality. You will recall Mr. Magoo as the cartoon archetype of nearsightedness. He often mistook puppies for babies and lamp posts for ladies. He wasn’t stupid. He just misinterpreted visual data. This is very easy to do with financial data.
Economic data encompasses the entire financial picture of a person, a city, a state and the nation in general. In spite of this, some house-hunters only look at the interest rate. Very well, Palm State Mortgage Company will also look at some of the newest information on the interest rate. Following that, we will also examine a variety of economic factors. It is our belief this will allow you to see that both your interest rate and your loan depend on many economic factors, not just the ongoing interest rate.
Economic News about Interest Rates: No More Mr. Magoo for You!
According to ABC News, “The 30-year fixed rate mortgage averaged 3.94%. This is down one basis point during the week and marking a fresh 2017 low.” Likewise, they reported, “The 15-year fixed rate mortgage averaged 3.19%, unchanged for the week. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.11%. This is up four basis points.
This is great news for buyers. On the other hand, it might not be so wonderful, or lucrative for sellers. According to a report from the Urban Institute, the 30-year fixed mortgage made up 89.6% of purchase mortgages in February.
Economic Data: The Picture Frame that Holds the Interest Rate–that Holds the Big Picture
As you might already know, the 30 year fixed rate has been slowing. It has been steadily slipping slightly, for the last three weeks. If you have been searching for a good lender and a 30 year fixed mortgage, you also probably realize, you are part of the largest majority of mortgage shoppers. House hunters who want to buy a home are in the top 89% of people who are searching for loans. That piece of economic data lets you know you have a lot of competition for shopping in the housing market!
Palm State Mortgage Company has repeatedly warned home mortgage seekers that new home deals are dependent on more economic data than just the interest rate. Furthermore, we want home buyers to know that several personal, state and national economic factors contribute to both the interest rate and to their ultimate deal on your dream house.
Your Economic Primer: Watching the Health of the Economy and the Big Picture
Interest rates do not rise and fall in an economic vacuum. First of all, the health of the economy affects the possibilities behind your house price. This also affects the interest rate and ultimately, your lender’s mortgage deal. They are all economic pieces of the Big Picture of Finance.
Secondly, Factors like unemployment and inflation statistics will influence lenders and the types of deals they finance. Likewise, consumer confidence and area housing markets can influence your home financing deal.
All of these areas are interrelated. And all of them influence the interest rates. This includes areas such as unemployment, inflation, consumer confidence, and the housing market. Everybody hears these words in the news. But many people never slow down and take the time to define these economic data terms, much less regard them as highly as the prized term interest rates. Let’s take a quick look at a few of these factors:
Inflation: Prices Onward and Upward
Mortgage lenders are always watching the gradual upward movement of prices due to inflation. As all grocery shoppers know, Inflation “wears down the purchasing power of dollars over time, and lenders typically have to maintain interest rates high enough to overcome the erosion of buying power to ensure their returns represent a reasonable net profit.”
Consequently, lenders watch inflation carefully. Only by keeping careful watch can they know how to adjust their mortgage deals. To put it even more simply, according to Investopedia, “as inflation rises, every dollar you own buys a smaller percentage of a good or service. When prices rise, and alternatively when the value of money falls, you have inflation.”
Economic Growth Indicators: More Demand Means Higher Rates and the GDP
Economic growth indicators such as the GDP, (Gross Domestic Product) also impacts lenders. Did you know that higher levels of economic growth cause higher incomes? Currently, we have an increase in both the amounts of money people are spending as well as more people in the mortgage loan market. “The spike in demand for mortgages usually propels mortgage rates higher because there is a limited supply of money lenders are able to provide.”
Let’s take this definition one step further: Experts tell us the GDP is a “broad measure of a nation’s total economic activity. GDP is the value of all finished goods and services produced in a country in one year by its nationals.”
The economic term “monetary policy,” is not an expression heard as often as “Inflation,” “GNP” or “Interest Rates.” But it is a highly influential term for your life and the public economy. Undoubtedly you have skimmed news articles about “monetary policy,” but here’s the short-form definition: “Monetary policy is the means by which the Federal Reserve manipulates the U.S. money supply in order to influence the U.S. economy’s overall direction, particularly in the areas of employment, production, and prices.”
To put it more delicately, you might have heard,“The Federal Reserve Bank does not have set interest rates in the mortgage market, but its actions to establish the Fed Funds rate and adjust the money supply have a big impact on the interest rates available. Increases in the money supply generally put downward pressure on rates while shortening the money supply pushes rates upward,” as stated by ABC News.
Caution! Palm State warns you, “Fiscal policy and monetary policy are not the same data. Fiscal policy refers to your taxes and government spending. The key to monetary policy is an understanding of the central bank of the United States, known as the Federal Reserve. This economic factor is a major player in the big picture of finance and mortgages. Check out some basic information about it at this informative online resource.
Today, We Brought You a Trio of Economic Factors!
Tomorrow, Palm State Mortgage Company promises you more terms for Your Primer of Economic Factors!
If you know about the above three economic factors, then you will better understand interest rates change. Experts tell us, “Interest rates tend to reflect the demand from borrowers and the supply of funds available from lenders and providers.”
As weeks go by, Palm State Mortgage Company will bring you a few more terms for your financial primer. The take-away from this blog article is that if you want to own a home, it is wise to learn a little background of economic data.
You are correct in assuming this is a big job on top of the actual home mortgage jargon you must learn on your journey to buy a home. However, learn a little bit of background about the whole gigantic picture of economic data, and to twist a phrase from Jurassic Park, “You’ll never look at interest rates the same again!”