mortgage interest rate change

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i like to know about the key economic indicators which affect the future trend of mortgage interest rates,thanks a lot

carnahandavid · Joined: 21 Dec 2006 Posts: 239 58.40 Dollars($)

Hi Folkenflik,

Some of the important economic indicators which have an influence on the future rate trend are -

Consumer Price Index (CPI)

This index provides a measure of the changes that occur in the price of goods & services consumers pay for. A consumer price index which is higher than expected or has a rising trend is considered to be inflationary. This can cause fall of bond prices & interest rates to go up. On the other hand if the CPI is showing a downward trend or is actually lower than what it is expected then it will cause the rates to fall.

Product Price Index (PPI)

PPI is a group of indexes which are used to measure the changes in selling price which producers of goods & services receive in the domestic market. This price change is measured by PPI from the perspective viewpoint of the sellers. The bond prices can fall and interest rates rise if the product price index is higher than expected, which is considered as inflationary. Similarly, the interest rates would fall if the PPI has a lower than expected figure.

David

blue · Posted: Tue Feb 27, 2007 3:00 pm Post subject:

Hi Folkenflik,

There are some other important economic indicators which effect the way interest rates change, these are:

Gross Domestic Product

This is one of the important economic indicators. Any quarterly increase which is larger than what was expected is taken as an inflationary rise. In such a situation Fed intervenes & raises the interest rates to slow down the growth. On the contrary, economic downturn shown by a decreasing GDP would result in Fed lowering the rates to increase the economic activity & increase the rate of growth.

Housing Starts

It is economic indicator which gives information about the no. of dwelling units on which construction has started. Any more than expected increase in housing starts results in triggering economic growth and is taken as an indicator to inflation. It thus results in fall of bond prices and increase in interest rates. Similarly, if the housing activity shows a downward trend then economy might go into recession resulting in fall in interest rates.

Employment situation

On the basis of payroll records of business concerns government's employment report provides important statistics relating to earning estimates, employment and hours of work. This report which gives payroll employment data along with information on the rate of unemployment provides indication about the economic trends on a monthly basis. Any higher than normal monthly increase is taken as an indication of inflation and can cause fall of bond prices and interest rate increase. While a smaller monthly increase would result in rate decline.

Unemployment rate

Government's employment report which I mentioned in the previous point also provides data about the unemployment rate & the no. of unemployed categorized as per various industries, reason for unemployment and duration of unemployment. If the unemployment rate is lower than what is expected it suggests inflationary situation and causes the bond prices to decline and interest rates to increase.

Let me know if you have any other questions.

Thanks
Blue

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