Interest Rate Report - May 2006 to Dec 2007
Mortgage Rates Back Off
Mortgage Interest rates seemed to be on the rise. Briefly. Now they are filtering back down to levels we've experienced since last August -- ranging between 5.9% and 6.9%.
On the one hand, the economy does not seem to be strong enough to sustain higher interest rates. On the other hand, inflation may be getting out of hand.
What should you worry about? A lot.
Economic News Affecting Interest Rates
The Gross Domestic Product (GDP) measures how fast the economy is growing. Economists originally expected a growth rate of 4% for the first quarter. Then they lowered their expectation to 3.5%. Even those expectations were not met.
The economy grew at only 3.1%, the lowest growth rate in two years.
Reasons for slower growth were higher energy prices and lower consumer and business spending. Higher energy costs act as a brake on the economy.
Here's the problem. The GDP figures pegged inflation for the quarter at 2.2%. That equals an annual rate of 8.8% -- which is high.
According to the news, economists believe the lower growth is only temporary. However, the last four times energy prices spiked, guess what happened? Recession.
Meanwhile, Greenspan and the Federal Open Market Committee (FOMC) are expected to raise short-term interest rates yet again. You see, given a choice between inflation and killing off the economy, the FOMC will kill off the economy. Inflation is viewed as a long-term threat. Recessions are normally temporary, recharging batteries for normal healthy growth.
Higher energy costs, higher interest rates, lower spending on durable goods, lower spending by businesses, could equal less tax revenue for the government, causing higher budget deficits than expected... It could be a worrisome time ahead. But here, Bend Oregon real estate, the housing boom is over but the homes that are priced right are still selling. 03/11/07
Interest Rate Future
Long-term interest rates like mortgages do not move up and down based on what happens in the economy. They move up and down based on "expectations" of what WILL happen in the economy.
Right now no one is sure what will happen.
So for the short term, interest rates should remain stable. That is not a big prediction -- interest rates have been stable for a long long time.
If inflation fears come true, since that is contrary to most expectations -- interest rates could drop. Not in the immediate future, but in the months ahead.
Of course, there are a couple of wild cards. Inflation. Budget Deficit.
