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The cost of a barrel of oil is up nearly 80% over the past six months. The rapid increase in oil prices has had a significant impact on a number of industries such as travel and transportation. Food prices are increasing and there is a growing concern that this rapid rise could have global consequences. The rapid rise in oil has sent the U.S. stock market down nearly 600 pts in a little over one week of trading, yet mortgage rates have continued to climb.

In a normal market interest rates tend to move in the opposite direction as the stock or equity market. Investors will typically pull money out of stocks and invest in bonds which drives down the rates. This rule however does not always apply which has been the case of late. The rapid rise of oil prices has increased the real and potential levels of inflation in the market. Investors who are concerned that inflation is growing will demand that they have a larger premium on their investments, therefore mortgage rates move up in correlation.

The market has seen mortgage rates hover at or below six percent for the better part of 2008 as the market has been focussed on a slowing economy and concerns over the health of the U.S. housing market. With the market recovery in the second quarter, mortgage rates have been moving up following the stock market. THe stock market crossed back over the 13,000 point mark in early May and long term fixed mortgage rates have moved north of six percent.

The increase of oil could have dire consequences on the U.S. housing market. The economic stimulus package that was passed in January will certainly be less effective if consumers decide to use their rebate checks to pay bills or save for gas expenses as opposed to purchasing goods and services. This money was expected to play a critical role in helping to restore the economy and now this effort could be missed as the money gets funneled into alternative channels.

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Source by Oliver Kyle