Recently, both renewed problems in Greece and inflation news dominated the headlines and led to some volatile trading. Will Greece default on its debt obligations? How will this fiscal uncertainty impact home loan interest rates in Dublin, CA and the greater Tri-Valley?

The Greek government tried to close its unsustainable budget deficit with some unpopular austerity measures, and its people responded with riots. As the Greek people continued their protest against cuts to their entitlements and increases in their taxes, the European Union and the rest of the international community seemed divided on what to do. The Greek government recently announced some reshuffling within the Parliament. News of that reshuffling appeared to have been well received by the rest of the world, since news got out shortly after that Greece may be some sort of bailout to meet its near-term financing needs. With more than 20,000 people rioting in the streets, the Greek government had to do something to calm the markets, but the story of Greece’s failing fiscal health is far from over.

Shaking up the Parliament will not fix Greece’s long-term debt problems, nor will the short-term bailout, if it happens. Greece has not done anything substantive to address the unsustainable spending that led to the current crisis, so it ha simply delayed the inevitable debt restructuring, re-profiling, or outright default.

The volatility in Greece has led to some flight-to-safety buying of US Treasury Bonds and Mortgage Backed Securities, upon which home loan rates are based. The increased demand in these less risky investment products have driven up their prices and helped lower home loan rates last week. Given that signs of inflation also heated up last week, the increased demand in bonds and high-quality debt securities could not have come at a better time.

Like Kryptonite to Superman, inflation is the arch enemy of bonds and home loan rates, because inflation erodes the value of the fixed return provided by a bond, which causes home loan rates to rise. Two weeks ago, both the Producer Price Index, which measures inflation at the wholesale level, and the Consumer Price Index (CPI) were both reported hotter than expected. The Core CPI rose by 0.3%, which was the largest monthly increase in three years. While the Federal Reserve continues to insist that those increases are only temporary, more signs of inflation in the coming weeks and months may further chip away at the value of the fixed return provided by the bonds and hinder bonds while pushing up home loan rates even more.

Still, home loan rates remain near some of the best levels the country has seen this year, and prospective home buyers in and around Dublin, CA should take advantage of these levels to minimize the total cost of their home purchases or home refinancing. If you have been thinking about purchasing or refinancing a home, call me at at (408)626-0394 or email me at scott@scotthillteam.com. My team and I will be happy to help you understand why now is a great time to benefit from today’s historically low rates.