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Is Inflation Returning?

By
Real Estate Agent with Coldwell Banker Residential Brokerage, Lancaster PA RS134746A

As of May 31, the national average mortgage commitment rate for a 30-year fixed-rate loan was 6.42%.  The 15-year fixed-rate mortgage was 6.12%, and the one-year adjustable rate averaged 5.57%. 

A poll of local Lancaster County lenders, conducted by the Lancaster County Association of Realtors(R) on June 6 showed an average 30-year fixed conventional mortgage rate of 6.11%, and an average conventional 15-year rate of 5.78%.  Lancaster County's mortgage lending industry is very competitive, and typically seems to have rates a bit better than the national averages.  

These rates are still historically low, and are rising only moderately.  The question is, what does the future hold for inflation, and hence interest rates?

I think that with the high cost of energy, there is a fair chance of inflation returning.  Fuel figures into the cost of everything from food to building materials to airline tickets.  Everything which must be delivered by car, truck, air, sea or rail will include higher transportation costs.  The higher cost of materials eventually translates into higher costs of finished goods.

The other major contributor to inflation is government deficit spending.  In recent years government spending has ballooned, by both parties, on both the war on terror and on social programs. 

The expectation of higher costs really means that the dollar is weakened and will buy less.  That leads to higher interest rates, as lenders seek to make up the projected loss of buying power of their money, plus figure in a profit. 

As long as the economy stays relatively strong, it seems to me that the odds favor moderate but not radical increases in mortgage rates.  Whether you are a first-time homebuyer or are considering trading up, it's still a good time to buy.

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Brian Schulman offers expert real estate representation for buyers and sellers of homes in Lancaster County, PA.  To learn more, visit http://www.FindLancasterHomes.com/

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