Inflation Still Nipping At Our Heels

Inflation is not completely under control just yet. In the month of May, the Consumer Price Index rose 0.4 percent in the US. That level of inflation represents a 5.2 percent yearly rate. This is much higher than 2005, when the rate of inflation was only 3.4 percent for the year.

What's driving this nasty trend? Higher housing costs are one aspect. On top of that, we have higher gasoline and energy costs -- which tend to affect the prices of all sorts of consumer goods, since much of what we buy is transported from one location to another. Transportation costs obviously will be added to anything that you buy.

With inflation still on the move, you can expect the Fed to raise rates in order to keep the inflation monster at bay. With the Fed raising rates, you can expect mortgage rates to increase too. With rates on the rise, your best bet if you're buying a home is to have solid mortgage rate locks as early in the process as possible, and quick loan closings. If you need to use some of your home equity for either refinancing other debt or for renovations, do it now!

Aside from interest rate hikes, inflation isn't your friend for other reasons too. Inflation will erode your buying power by having prices rise faster than your paycheck. That's the bottom line.

Given that scenario, locking in your mortgage could be a good strategy regardless of who you are. It will mean that your payments stay the same; that's handy if your paycheck isn't moving either.

Michael

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