Deflation post #6

Dan Green of featured this helpful graphic on his blog today:

Deflation Post #5

John Schoen wrote this article on today about inflation.  He references the negative macro-economic implications of such an occurrence.  As I continue to say, hopefully the financial markets buy into the expectation of deflation but that it never actually takes hold.

This would create low mortgage rates for a window of time and create great opportunity for mortgage holders to refinance into historically low interest rates.

Rate Update November 20, 2008

Mortgage rates are modestly better this morning this morning.

In yesterday’s rate update/ you tube video we focused on the concept of “deflation”.

Coincidentally, the Federal Reserve released a report yesterday in which they acknowledged the future risks of deflation in our economy.  On that news the stock market slid to a new multi-year low as investors sold stocks and bought US treasury bonds.  While US treasury yields sank yesterday mortgage-backed bonds failed to benefit.  Watch today’s you tube video to learn more about the interest rate environment.

We believe that mortgage rates have a good chance of dipping lower over the course of the next few weeks/ months in response to deflationary expectations.  If you’d like to review your mortgage situation with us and establish a “trigger point” for refinancing please feel free to contact us.

Current outlook: neutral in the near-term/ floating in the long-term

Deflation post #4

This morning included a section in this article about deflation.  The article does a good job of explaining why a deflationary environment can be harmful to the health of the economy….especially in the retail sector.

Now, economists are worried about deflation – the opposite of inflation. Falling prices may be a welcome sign for consumers in grocery store aisles and filling up at the pump, but deflation is generally a bad sign for the economy.

…If prices fall below the cost it takes to produce products, businesses will likely have to cut production and slash payrolls. Rising unemployment would cut demand even further, sending the economy into a vicious circle.

The silver lining is that in a deflationary environment we would expect mortgage rates to move very low.  Here are links to 3 other deflation posts-

#1, #2, & #3

Deflation post #3

This weekend The Economist magazine published this article about developed economies and the likelihood that they will experience deflation in the next few months.

The article explains how deflationary pressures would be initiated because of falling commodity prices (known as “commodity-led deflation”).  The article goes on to explain how deflation can lead to further deflationary pressure.  How?

As deflation takes hold in the economy consumers who carry large debt burdens are faced with relatively more expensive obligations.  As this happens they are less likely to buy goods and services dampening demand and putting further pressure on prices to move lower.

I originally discussed deflation and the impact it should have in lowering mortgage rates in this post back on November 2nd.  We would expect mortgage rates to decrease as deflation becomes reality.

Deflation string-article #2

This past Sunday I blogged about Nouriel Roubini’s prediction that the US economy would face deflation in the next 6 months.

Today, has also published this article in which they report that deflation is becoming more and more of a concern for central bankers.

In terms of economic health deflation is a bad sign.  In terms of mortgage rates the expectation of deflation could help mortgage rates get very low.  That’s why I am hoping that expectations for deflation grow so rates can move lower but that we never actually reach that point.

Deflationary environment would lower mortgage rates

You’ve probably never heard of Nouriel Roubini but you may want to start paying attention.  Along with Peter Schiff he basically called the subprime mortgage crisis before the term even existed.  He is getting a lot of attention lately in the media.

In this article published on he lays down the argument that the US economy will experience deflation in the next 6 months.  Although there are many scary macro-economic implications of such an event there is a silver lining for mortgage rates.

Since we know that higher inflation causes mortgage rates to increase, it can also be said that deflation causes mortgage rates to decrease.  In fact, much of the credit for low interest rates following 9/11 has been appointed to concerns of deflation.