Invest in a Mortgage Now!
Posted Monday, August 10th, 2009
Chart A
A mortgage may be the best long-term investment you can make in the next year or two – for 3 reasons.
3) A low interest- rate mortgage will be a big plus as inflation rises.
The Federal Reserve has greatly expanded the money supply in the last year via huge borrowings. Political rhetoric claimed these massive assumptions of debt were made to increase the potential of banks and other financial institutions to lend money. Good theory but banks have remained cautious about new loans and reserves have increased – thereby enlarging the money supply.
2) Inflation is likely to accelerate as the global economy recovers.
Chart B
The world economy will drive the next stage of recovery – not the US. Developing economies have pushed the demand for crude higher this year, despite a worldwide business slump. As you can see in Chart A, oil has jumped this year.
Likewise, gold prices have rebounded despite the recession and specter of deflation, as you can see in Chart B.
1) Mortgage rates are poised to rise
Mortgage rates have been trending down, depressed high unemployment and resulting deflationary pressures. As you can see in the graph below (Chart C), mortgage rates have fallen, even as crude and gold prices have risen.
Chart C
The consumer price index, a measurement of inflation, is closely tied to energy prices. The CPI is likely to catch up with oil as economies rebound.
In short…how long can mortgage rates stay low with growing debt, rising inflation, and competition from abroad? Regardless of when the Great Recession ends or things return to normal, a conventional loan or FHA a mortgage may be your wisest investment.
Hard to say, but one thing is for sure…mortgage rates won’t be lower than they are today.
Chart A, Oil price – Courtesy New York Merchantile Exchange Chart B, Gold price – Courtesy Galmery.com Chart C, Mortgage rate – Courtesy mortage-x.com Articles also used in content were Seeking Alpha – Crude Oil-Yield Curve, Calfia Beach Pundit 7/26/09 and Fidelity Inc. – Dirl Hofschire VP Market Analysis 8/4/09