Can You Find Your Mortgage Rate in a Head of Lettuce?
Posted by SaveAFewThousand.com Blogging Team on Monday, December 13th, 2010 at 4:34pm.Your mortgage interest rate may be significantly influenced by an unassuming gentleman who knows entirely too much about women’s clothing.
In a recent NPR Planet Money podcast, you can meet George Minichiello. Mr. Minichiello is an Economic Assistant, one of 450 people who travel from store to store, gathering information about the price of some pretty specific items. When he has done his scouting, he sends the information to the U.S. Bureau of Labor Statistics to be indexed and correlated into the monthly Consumer Price Index (or CPI).
In order to perform his job, Minichiello needs to look for specific items – very specific. He knows a lot about women’s clothing styles and fabrics because that’s what he needs to look for to find out if the price has gone up/gone down or stayed the same for a given item. If he’s looking for lettuce, he can’t just grab the nearest head of iceberg and take a look at the price; he’s looking for something in particular, like a package of romaine hearts of a certain brand.
NPR’s podcast didn’t delve into the far-reaching affect that the CPI has on nearly everything monetary in America. The Index's influence reaches as far as home ownership.
You may not think that the CPI has much to do with mortgages at all - it doesn't even track them. In the CPI’s eyes, “shelter” is viewed as a consumption item, but mortgages and home improvements are not. This is, according to their How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and Rent of primary residence (Rent) document, because residential buildings are “not consumption items” and are “investment items”.
However, what the CPI does indicate is how much people are paying just to live in America - information that is often used to determine how much people are willing and able to pay for interest on their mortgages. The Federal Reserve refers to it when determining interest rates – something that very much affects what you’re going to pay for a given property mortgage loan.
There are many factors influencing mortgage interest rates and the CPI isn’t the most influential by any means. It is more of an indicator of how the economic weather lies by itself, but when viewed as a tool used by the Fed to determine interest rates, its power to affect you grows. Your mortgage rate doesn’t just depend on how much a particular store sells a particular type of cheese for, but it’s fair to say that it has a substantial influence and it’s worth keeping an eye on if you are looking to buy or sell a home.
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