Oil Prices and Home Loan Rates

Nobody likes to pay more at the pump. But when it comes to how oil prices impact the economy...and home loan rates...here are some important factors to consider, and to share with your clients. On the one hand, high oil prices can be very detrimental to the fragile U.S. economy, as consumers have to put more money into their gas tanks–which means they have less to spend elsewhere. High oil prices are also inflationary since the added shipping and material costs apply upward price pressures on Producer or Wholesale goods that either have to be absorbed by the producer (thus hurting profits and the ability to expand or hire) or passed on to the consumer...a la a rise in consumer inflation. On the other hand, high oil prices could actually be good news for home loan rates, as the dampening effect on economic growth produces a sluggish economic environment in which Bonds (including Mortgage Bonds, to which home loan rates are tied) thrive.