Real estate's oil pressure light is on

Crude prices hit a record $127 a barrel today, helping kill a stock market rally that was fueled by a better-than-expected leading indicators report from the Conference Board (the report suggested that the economy has slowed down but is not in a recession).

While the stock market has been on a wild roller coaster ride for months now, rising oil and commodities prices could also hinder the recovery in housing markets by pushing up mortgage rates. Fears of inflation drive up bond yields -- including those used to finance mortgages, and the current boom in oil and other commodities has serious inflation ramifications.

It's hard to believe that less than a year ago -- when OPEC announced it would boost oil production in response to the mess the mortgage meltdown had made out of financial markets -- that oil was $76 a barrel. Oil prices seemed stratospheric at the time (they had more than doubled in two years) but warnings of $100-a-barrel oil might have seemed far-fetched.

Now there's talk of $200-a-barrel oil, but OPEC nations have been less sympathetic lately, saying the weak dollar is helping drive up prices (Saudi Arabia's pledge to boost production by 300,000 barrels a day has been seen as a token gesture -- see Bloomberg). The Fed's taken some of the blame for that. By slashing short-term interest rates in recent months, some say, Bernanke and Co. have helped devalue the dollar, pushing up the price of oil, food, and other commodities.

The Fed and the world's central banks are in a "preserve the economy or fight inflation" conundrum, with Asia, India, Russia, the Middle East and some emerging nations "in full-blown wage-price spiral and overheating beyond capacity," writes mortgage broker and Inman News columnist Lou Barnes.

Barnes says the Fed is doing what it has to -- trying to keep U.S. GDP from shrinking -- but that mortgage rates have surged in recent weeks and we shouldn't expect to see them back down in the fives again without a weakening economy. Bankers, he says, are hoping the slowdown in the U.S. and Europe "will spread to Asia, breaking commodity and food prices, and perhaps mortgage rates as well."

Rising oil prices may be a boon for Gulf Coast and "oil patch" states, but rising mortgage rates will reduce the buying power of house hunters, putting more downward pressure on prices. Although prices may still need to come down in some markets to make home ownership attainable for average folks, buyers won't get off the sidelines until there's some stability.

Maybe that's fine for folks like the Clampetts or anybody who can put cash on the table when they go house hunting in Beverly Hills, but for the rest of us higher oil prices are going to be felt at other places than the gas pump.

All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.