OPEC, Russia, and Their Impact on Mortgage Rates This Week

/blog/opec-russia-and-their-impact-on-mortgage-rates-this-week/

Mortgage rates had been record-level low for most of the year, and yet that probably wasn’t the main financial indicator that most Americans were looking at. If you weren’t looking for a home during 2016, odds are you were looking at your fuel gauge instead. Low prices for gasoline continued to make life easier for anyone in a car during the past 12 months.

The good news about the mortgage industry is that there’s not one major organization that can legally act to control rates. This isn’t true for gas. The Organization of the Petroleum Exporting Countries (OPEC) is made up of 14 of the world’s top pumpers, including the gulf states, Iraq, Iran, Venezuela and others. No one has more influence on the prices at the pump. This week, the group met with Russia—one of the two most powerful non-OPEC exporters—to hash a deal on limiting the amount of petroleum the two sides release to the market.

“Okay,” you ask. “So what? I came here to read about mortgage rates.”

There’s a more direct link between the two concepts than you might think. By limiting the amount of gas released, OPEC and Russia are aiming to drive up price-per-gallon around the globe. That’s the first piece of bad news.

Higher gas prices are a strong indicator of increasing inflation in the future. Inflation, in turn, leads to higher interest rates. Higher interest rates include mortgage rates.

Don’t go blaming the petroleum industry yet, however. The bond markets definitely responded to the OPEC announcement on Wednesday, and mortgage rates rose accordingly. But that rise still didn’t allow the rates to reach last week’s highest point. We were fortunate that they had dipped down on Monday and Tuesday before bouncing up again to the 4.125 percent range.  

Ultimately, there are other factors in play that take precedence over gas prices (for now). Maybe we’ve mentioned this in the past few weeks (we have), but rates are currently increasing due to inflation fears…resulting from Donald Trump’s theoretical policy decisions.

Of course, many would note that Trump’s campaign policy claims have wavered significantly since his election, so we’re not in a place to guarantee anything. And, many publications are suggesting that the OPEC deal might not hold out for very long either. Stay optimistic!