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Real Estate Finance Rates

Guest post by: Danny A. Lyons

Article Overview: After years of being concerned about inflation, the Fed is now concerned about deflation. So what exactly is deflation? Deflation is when prices drop, which generally is due to lack of demand, and therefore lack of pricing power. With the economy slowing down, we are hearing economists forecast that we may be in for a deflationary recession. In a deflationary environment, investors flee into fixed instruments like Bonds, because the fixed payment received would actually buy them more goods and services over time as prices decline.

Real Estate Finance Rates

After years of being concerned about inflation, the Fed is now concerned about deflation. So what exactly is deflation? Deflation is when prices drop, which generally is due to lack of demand, and therefore lack of pricing power. With the economy slowing down, we are hearing economists forecast that we may be in for a deflationary recession. In a deflationary environment, investors flee into fixed instruments like Bonds, because the fixed payment received would actually buy them more goods and services over time as prices decline.

So what does this mean for Real Estate Finance rates? Remember, rates improve as Bond pricing moves higher - and more demand for Bonds would mean higher prices for Bonds. In the spring of 2003, when Alan Greenspan uttered the "D" word, deflation, Bonds rallied 400bp in just a few weeks, bringing a significant drop in home loan rates. Of course, the economy is different right now, but as more money may be headed towards Bonds in a deflationary environment, we could again see a significant improvement in home loan rates down the road.

On the inflation front, the last Producer Price Index indicated that wholesale inflation plummeted last month - by the most since records began in 1947 - largely due to declines in energy prices. In addition, the Consumer Price Index showed that inflation at the consumer level fell by a record 1.0%, thanks again to lower costs of energy.

When it comes to the direction the economy is heading, we have had some hopeful news. Federal Reserve President Jeffrey Lacker said that an economic recovery could begin in 2009 as low interest rates, low energy prices, and less drag from the housing sector may shore up spending.

Danny A. Lyons / CreditCardProcessor.Com / http://creditcardprocessor.com / (702) 405-9075 * (801) 681-1087 Fax / dan@merchantcapitalstore.com

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