What does OPEC have to do with your house payments? A lot, says American mortgage lender, James B. Nutter
American consumers have been benefitting from low gas prices, and those bargains at the pump have been accompanied by historically low mortgage rates.
When the economy is growing - as it is now at a healthy 4% - oil prices typically rise with demand. But the low oil and gas prices of late have been engineered by OPEC, and for its benefit. OPEC’s strategy to price oil low when demand is high lures America into buying cheap oil from them - and thereby derails booming U.S. shale oil production.
The Economist magazine reported on Dec. 6, 2014, “Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.”
“This is hurting our country’s efforts to attain energy independence,” said James B. Nutter Jr., president and CEO of the James B. Nutter Mortgage Company. “It’s even hurting oil producers such as Russia, where the ruble has been plummeting and interest rates have been ramping up. But those who think OPEC will maintain this strategy have short memories, because OPEC members tend to act in their own best interests as opposed to sticking together.”
Before long, certain OPEC members are likely to break ranks and cut production to constrict supply. “This could make the price of oil shoot up, and that draws mortgage rates up with it,” said Nutter, whose company offers mortgage options such as conventional mortgages, VA mortgages, FHA mortgages and reverse mortgages.
“Like most things, there is a positive and a negative to what goes on in the world," Nutter said. “While low gas prices are bad for American efforts to gain independence from foreign oil, it is good to have a break in gas prices and low mortgage rates in a time of growth. But I’d caution anyone to not count on these low oil prices and consequently low interest rates to stay around. It could change any moment OPEC members aren’t all in agreement on the low price.”
Some Americans are seeing the writing on the wall and taking action. It was reported recently by Keller Williams Platinum Partners that the pace of home sales continued to increase in October, for example. And James B. Nutter & Co. reported in a recent blog post that an unprecedented number of homeowners are opting for a Term Reduction Refinance.
“My counsel for people looking for a mortgage rate deal is to lock in a low rate now, given the uncertainty of the price of oil remaining low amid a growing economy,” Nutter said.