Problems in the lending industry have caused great worry (both legitimate and paranoid) for prospective Real Estate consumers. But today there is some great news for the second largest mortgage lender in the country, and great news for the economy in general. According to an MSN money article dated July 16, 2008, Wells Fargo is reporting big ups in Q2 earnings, and a 10% increase in dividends. This helped to precipitate a 277 point boost to the Dow.

We certainly have reason to a smile - briefly.

Inflationary Pressures on Interest Rates

As this article also discusses, inflation is a growing concern for the Fed. The Fed counters inflation with raises in interest rates which (indirectly) lead to mortgage rate increases. When this happens, people seeking mortgages end up paying more for the same house.

The thing that holds the Fed back from raising interest rates is a slow economy-the Fed worries that raising rates could cause even further slowing. But as the article reports,

Fed officials suggested that they were growing more concerned about inflation than economic growth

The Fed’s talk is still conservative, as they have not spoken of any plans to raise rates. But inflation, coupled with easing concerns about slow economic growth are certainly pushing them in that direction, whether they say it or not.

How Much Will Mortgage Rate Increases Cost the Consumer?

Talk on the street is for 7.0% mortgage interest rates by the end of the year. A 1 point increase in interest rates requires a 10% drop in property prices for monthly mortgage payments to remain the same.

Since few Oahu areas are experiencing price drops near 10%, an interest rate increase almost always means higher payments for buyers who wait. Almost half of the neighborhoods are still seeing price increases. For those neighborhoods, interest rate increases are going to really sting.

Move now, rates are low. They aren’t going to stay that way – so why waste money. And congratulations to Wells Fargo!