Phoenix Arizona Real Estate News & Trends | Living In Phoenix Arizona | Phoenix AZ Real Estate News
Channel: Living & Loving Phoenix By Gordon Hageman
Date: 2023-10-11

3 Things To Know This Week:

1) **Inflation Update: A Deep Dive into Recent Economic Figures**

On Wednesday, there was a stir in the financial community when the Labor Department reported a hike in the Producer Price Index (PPI). The PPI, which serves as an indicator of inflation at the wholesale level, saw a 0.5% increase in September. This is slightly less than August's figures; however, it surpassed the forecasts of Wall Street. Now, the annual PPI rate is at 2.2%, which is the highest since April. What's more notable is that this exceeds the Federal Reserve's preferred annual inflation benchmark of 2%.

This leads us to Thursday's anticipation for the release of the Consumer Price Index (CPI). Market experts are bracing for the announcement, which is projected to reveal a headline inflation of 3.6% for September. If we look beyond food and energy prices, the core CPI is expected to touch 4.1%.

Now, for a closer look at the raw data:

- The Consumer Price Index for All Urban Consumers (often abbreviated as CPI-U) went up by 3.7% over the past year, bringing its index to a value of 307.789, with 1982-84 as the base reference (marked as 100). If we break down the monthly data, the index saw a 0.2% growth before any seasonal adjustments were considered.

- As for the Producer Price Index details, there was a 0.5% rise in September. The breakdown of this data shows that the prices of final demand goods jumped by 0.9%, whereas the index for services at the final demand stage grew by 0.3%. Over the course of the previous 12 months, concluding in September, there was a 2.2% uptick in prices for final demand.

To sum it up, these figures point towards a noticeable surge in inflation, both at the wholesale and consumer levels. All eyes will now be on the Federal Reserve and other economic policymakers on how they'll respond to these developments.

2) *What is the 2/1 Buy Down Option for Mortgages?*

Simply put, the 2/1 buy down option is a mortgage strategy where the homebuyer pays an upfront fee to secure a temporarily reduced interest rate for the first two years. Typically, this rate drops by 2% the first year and 1% the second, reverting to the standard rate from year three.

*Breaking Down the 2/1 Buy Down Mechanism*

Let's say you're a homebuyer eyeing a 30-year mortgage at a 6% interest rate. Opting for the 2/1 buy down, your rate scenario would look like:

- *Year 1:* A lucrative 4% interest rate.
- *Year 2:* A competitive 5% rate.
- *Year 3 and beyond:* Back to the initial 6% rate.

3) **Adjustable Rate Mortgage (ARM)**

An adjustable rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. Typically, an ARM starts with a fixed interest rate for a specified period of time, after which the rate adjusts periodically based on a reference interest rate or index.

**Advantage in High Interest Rate Environments:**

When interest rates are high, ARMs can be a beneficial tool for borrowers. This is because they often start with lower initial rates compared to fixed-rate mortgages. Thus, if a borrower believes interest rates will decrease in the future, they can take advantage of the lower initial rates of an ARM, and potentially benefit from reduced rates in subsequent adjustments. Furthermore, if one is not planning on staying in the home for a long period, they might avoid the higher rates that come with long-term fixed mortgages and instead opt for the initially lower rates of an ARM.

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