Why is INFLATION in the News?

AND WHAT DOES IT MEAN TO INTEREST RATES?

If you've seen the news lately, you know concerns about inflation are increasing. But what does this really mean to you?

Let's start with what it means in general. The Bureau of Labor Statistics defines inflation as the "upward price movement of goods and services in an economy." There are a variety of indices that measure different aspects of inflation-including the Consumer Price Index, whose latest reading showed that the cost of living in the US rose more than forecast due largely to a jump in energy costs.

The fact is that inflation is a very serious issue that many traders, legislators and lenders are concerned about because it will likely be on the rise as 2009 proceeds.

How Does Inflation Impact Interest Rates...and Why?

The bottom line is that as inflation increases, home loan rates will rise too. That's because lenders know that a rise in inflation actually diminishes the value of the money they receive over the life of a loan, as the money they receive for payment simply won't go as far. So when they see changes in inflation or even anticipate a rise, they increase their interest rates to make up for the loss in future buying power that will happen as a result of inflation.

Two Resources to Learn More...

To help you learn more about this important topic, take a look at two important links.

The first link takes you to a short news clip featuring the nation's foremost mortgage industry expert, Barry Habib. In this video, you'll learn how inflation impacts interest rates and what the outlook is for down the road.

The second link is as much educational as it is fun.

The Bureau of Labor Statistics has included a CPI inflation calculator on its website. This easy-to-use calculator allows you to see how much your money was worth in an earlier period-and vice versa. Simply type in an amount of money, select the years you want to compare, and hit the "calculate" button. The results are instantaneous...and may surprise you!

For instance, did you know that $33.66 in 1979 had the same buying power as $100 in 2009? That's a huge change in the last 30 years. This is a great way to see how inflation impacts your buying power. You can even use the CPI inflation calculator to have a discussion with children about inflation...and show them how much the value of a dollar has changed over the years.

What Should You Do?

Work with a real estate professional who pays close attention to what's going on with inflation-not only with the reports that come out, but also with the rumors and concerns that legislators and lenders express. After all, lenders may raise rates to protect their money as soon as they feel the tide turning.

More importantly...if you or any of your family, friends, neighbors or co-workers have been considering a purchase or refinance, this is a great time to act as home loan rates could be on the rise. The good news is that home loan rates are still near multi-year lows and present a great opportunity for those people who act quickly.

Please contact me today to discuss your specific situation, and feel free to forward this email to other people whom you think might benefit from it as well.