Flooding in the Midwest has displaced thousands of families and caused billions of dollars in damages.

It may also cause mortgage rates to rise.

As the extent of the damage becomes more clear, prices for grain and livestock are soaring. For example, a host of dietary staples are suddenly more expensive at the supermarket, including:

• Meat
• Pork
• Chicken
• Dairy
• Eggs

Rising food prices are considered inflationary and inflation tends to make mortgage rates rise.

But of all the foods that are increasing in price, it’s corn whose price is rising the most — up 70 percent so far since January. This is mostly because flood waters damaged up to 3 million acres of harvest in Iowa, our top-producing state.

Corn, of course, is a primary feed for livestock, so rising prices make it more expensive for farmers to raise hogs, cows and chickens. These higher costs get passed along to consumers and contribute to a higher Cost of Living around the country.

After facing (and adjusting) to rising gasoline prices, Americans are facing higher costs again — this time at the supermarket. And if food prices don’t recede with the flood waters, Americans may find that they’re getting hit in a third place — right in their mortgage rates.

Source
Hog Farmers Face a Perfect Storm
Ilan Brandt, Joe Barrett
The Wall Street Journal, June 20, 2008

Home buyers are often surprised when a “rate quote” from the morning won’t be honored in the afternoon. Sometimes, the assumption is that the loan officer is just being sneaky.

This couldn’t be less true.

Rate quotes change in the middle of the day because mortgage markets are in constant flux. All day, every day — just like stocks.

And like stocks, a mortgage bond’s morning price will likely “expire” before the day ends.

One way to visualize this is to look at today’s Microsoft’s stock price:

• At 9:30 A.M. ET, the price was $28.46
• At 9:38 A.M. ET, the price was $28.72

Over the course of 8 minutes, the stock rose by 26 cents and the “9:30 A.M. quote” was no longer available. For example, you couldn’t call your stock broker at 9:38 A.M. and place an order for the 9:30 A.M. price because the price had changed.

Mortgage rates behave the same way.

Throughout 2008, mortgage rates have changed mid-day more frequently than in the past. On more than half the days, morning rate quotes were no longer valid in the afternoon. And, on at least 5 separate occasions, rates changed 4 times in just one day.

It’s not typical, but it does happen.

So, if you’re talking with your loan officer in the morning about a rate quote, be prepared to do all of your shopping in a compacted amount of time, and then be ready to make a decision.

By the time the afternoon rolls around, after all, that rate quote may well be expired.

A “Housing Start” is a new home on which construction has commenced and in May, Housing Starts fell to a 17-year low nationally.

At first glance, this may seem like a negative for the already-battered U.S. housing market.

It’s not.

Falling Housing Starts reflects the broader real estate market and shows us that builders are working hard to get their already-built homes “off the books”.

It would be foolish for them to build new homes now — each new unit makes selling the existing ones tougher.

So, when we look at the figure objectively, we can see that Housing Starts reaching a 17-year low is actually good news — real estate prices are based on Supply and Demand, after all.

With Housing Starts touching new lows, we can infer that there will be fewer new homes coming on the market in the coming months and that should help support higher home values nationwide for everyone.

Each month, University of Michigan researcher survey the U.S. population about their thoughts on the economy — is it improving, it is worsening, is it staying the same.

May’s consumer confidence survey registered it’s lowest reading since 1980.

Given the recent headlines, that shouldn’t be surprising:

• Unemployment is spiking
• Gas prices are at an all-time high
• Housing markets keep getting bad press

But despite all of that, the American Consumer appears to be taking the economy’s hiccups in stride.

For example, last month, retailers around the country reported rising sales levels that doubled what economists expected. This isn’t supposed to happen when consumer confidence is falling as fast as it is, right?

But, a closer look at the retail sales data shows that discount retailers such as Target and Wal-Mart led the charge higher. So, although consumers are feeling worse about the economy, they’re still spending money.

And when they do, they look for value.

For home buyers, this should sound familiar because it’s every real estate agent’s mantra right now — “there’s a lot of good values to be had.” It’s why some homes are getting multiple offers within days while other languish on the market for months.

The difference lies in the perceived value of the home.

Home buyers are actively looking for “good buys” and when they find them, they’re quick to make an offer. It’s why the housing market is showing pockets of strength despite low consumer confidence levels overall — everyone’s snapping up the bargains.