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The recent increase in home mortgage rates has received little attention in the press, but has nevertheless become an immense drag on the economy.
The July 30 year-average home mortgage rate climbed to 5.94%.
Some commentators say this is still dirt cheap, by historic standards. The bump in rates will not drastically affect those who need to move, for reasons associated with jobs, or those who need to house growing families, but it has caused the home refinancing sector to come to a screeching halt.
And the Federal Reserve Bank calculates that home refinancing accounted for a whopping $700 billion of total consumer spending last year, accounting for a sizeable 10% of total consumer spending in 2002.
It works like this: As consumers were able to refinance existing home mortgage loans, much of the money saved due to lower house payments was pumped back into the economy through more spending. But with mortgage rates moving up, and refinancing sort of dead in the water, this "extra" cash influx into the economy will not be there.
Personal income will not increase fast enough to make up the difference, and consumer spending in late 2003 and 2004 will like remain flat at best.
Business people who were banking on a strong surge in consumer spending are likely to be disappointed. Mortgage rates, hovering around 6%, should not kill the new or used housing market, but the rates will surely put the brakes on consumer spending.
In this business climate, wise business people will do well to watch their inventory levels and keep overhead expenses to a minimum.
Steve Marr is the former CEO of the fourth largest import-export firm in the U.S., a company which facilitated international trade for many of the largest companies in America. Currently, Steve consults with with businesses and ministries utilizing ancient Biblical principles for success in today's marketplace. Clickhereto contact Steve, or visit his website atwww.businessproverbs.com
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