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How Spiking Oil Prices Have Mortgage Rates In Tow

May 23, 2008 by Scott Kinne

High oil prices are derailing the mortgage market this week, taking an almost-vertical path higher.

Since mid-February, prices are up by 50 percent.

Rising oil prices can be a threat the U.S. economy because with every extra dollar that Americans pay to energy companies, there is less money available for every other company that makes up our national economy.

Strangely, it comes at a time when the “other” companies need it the most — their costs of operating are rising, too.

So, businesses are faced with a tough choice and both option prove poor for mortgage rates.

  1. Keep prices level and suffer smaller margins (and profits)
  2. Pass higher costs onto consumers in the form of higher prices

If profits suffer, job cuts and a weak corporate spending can undermine an economic recovery. If higher costs are passed on, it leads to inflation and that devalues the U.S. dollar and mortgage bonds.

This is why mortgage rates have spiked along with oil prices this week. And, when oil prices level off a bit, we can expect that mortgage rates will, too.

Crude oil is up 1.8 percent this morning.

Filed Under: Uncategorized

Scott Kinne

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Vice President, Senior Loan Officer
NMLS ID #182351
Office: 703.293.6146
Mobile: 571.237.6241
Fax: 571.317.2478
skinne@fhmtg.com

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