The Petalumahomes.com Realty Weblog

Inflation was in the news last week. On Tuesday, the Producer Price Index came in more than double expectations, prompting fears of wholesale inflation. However, since wholesale inflation isn’t always passed on to consumers, the markets anxiously awaited the Consumer Price Index (CPI). CPI is an important measurement of inflation because it actually measures the average prices paid by consumers for goods and services, which is where the real inflation concerns come in. According to last week’s report, CPI came in just slightly higher than expectations.

Remember, inflation is the archenemy of Bonds and home loan rates, and it is said that “rates are the boat that floats on the sea of inflation”, meaning when inflation rises, home loan rates will move higher as well. With the recession appearing to be bottoming out and with an unprecedented amount of government spending over the past year, there are fears that inflation - and therefore home loan rates - may be on the rise soon. If you are in the market to purchase or refinance, this is an important aspect to keep an eye on. 

The $8,000 tax credit for First Time Home Buyers was also in the news again last week. White House Spokesman Robert Gibbs said that the administration is evaluating the program and the effect it has had on home sales and will soon make a recommendation to the President. Although there’s been talk and speculation regarding the expansion of this program, as of now, potential buyers must complete their first-time home purchases before December 1 to qualify for the special credit.

Overall, Bonds and home loan rates saw some nice gains early last week, but finished just slightly worse than they began, as Stocks closed at highs for 2009 and pulled some money away from Bonds. Whether Bonds can climb back up this week will depend not only on the economic reports due out, but also on how well the markets receive the incoming round of 2-year, 5-year, and 7-year Note auctions.

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