Last week Freddie Mac released the third quarter results of its Primary Mortgage Market Survey. I find enormous insight into the direction of the economy by tracking the direction of interest rates. They show you where we were, where we are and where we’re heading.
The 30 year fixed rate mortgage average was 6.33% for the week ending Nov. 9, 2006 up from the previous week’s average of 6.31%. At this time last year the 30 year fixed averaged 6.36%. So, what’s the point? These trends in mortgage rates and their subtle movements are reminiscent of the 1990’s (can anybody say “stagflation?”). Economics 101 tells us that Stagflation is simply put, stagnant growth combined with rising inflation pressures.
Its easy to notice the rising cost of goods in our daily lives, but when a $2.00 item goes up a dime no one really pays much attention to it. It’s a 5% increase coming off your bottom line. Add that to the recent explosion in oil & gas prices (which we haven’t seen the last of) not to mention housing prices and the lack of growth in wages, stagflation is the worst possible economic scenario that can deal a crushing blow to an aging population if it is allowed to continue.
Over the last 3 years, with the dramatic drop in mortgage rates, we saw the average homeowner using their houses like they were ATM machines. Sucking the equity out of their nest eggs as if 20% annual appreciation was the norm. But just like the stock market, “trees don’t grow to the sky.” Now who’s sucking eggs?
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