"When oil costs rise, it becomes more expensive to produce and ship goods, pushing up inflation. Though we're nearly three weeks into a war with Iran, it's too early to measure the full impact on inflation; March's Personal Consumption and Expenditures price index (the Fed's preferred inflation gauge) won't be released until April 9."
"Rising inflation reduces the value of future loan returns, so mortgage rates usually move higher to compensate. As the Iran war has choked the Strait of Hormuz (a major passageway for shipping energy products), oil prices jumped to their highest point in almost four years."
"When energy costs rise considerably, gas pumps aren't the only places consumers and businesses feel the sting. Potential risks to inflation are rising with each day the conflict drags on."
The Federal Reserve maintained overnight borrowing rates as expected, but mortgage rates rose in anticipation of inflation driven by elevated oil prices. Rising oil costs increase production and shipping expenses, pushing inflation higher. Mortgage lenders react quickly to inflation concerns by raising rates to compensate for reduced future loan returns. The Iran conflict has disrupted energy shipping through the Strait of Hormuz, causing oil prices to reach four-year highs. Fixed rates for 30-year mortgages averaged 6.15% APR in mid-March. Higher mortgage rates increase borrowing costs for homebuyers and eliminate refinancing opportunities. The Federal Reserve will likely wait for sufficient inflation data before making policy changes, while mortgage markets continue responding rapidly to geopolitical developments.
Read at SFGATE
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