The Direction of Mortgage Rates…
Mortgage rates are governed by several leading indicators and of course are not held to just one. The lending world generally will follow mortgage back securities for the most up to the moment price of an interest rate as well as track the bond markets. These are the 2 most important indexes to follow that allow us to watch the pattern or course of an interest rate.
In recent months, the government had a plan to invest 1.25 Trillion dollars into buying mortgage back securities in order to keep rates low over a period of 14 months. This worked, and rates were on average around 5.00% during this time. As the funds were coming to an end in March, the fear set in the rates would sky rocket. As we soon realized, it is not just these indexes that govern mortgage rates, the entire Global economy comes into play.
As the economy remains flat or stable, rates have done the same. Each time we see weak economic news globally, it causes a little rally in mortgage rates, overall in the last 18 months, rates have been at 5.00% plus or minus a quarter on any given day. Once the economy takes a turn for the good and all components are moving upward, we will see mortgage rates start the climb back up. Experts and Economists alike can only guess at where they will land, but we do know it is only a matter of time before we see 6 percent. As recent as July 2008, the 30 year fixed rate was at 6.75% for a few weeks.
What is new this time around is the Global picture. As we see the employment rate slightly improve, consumer confidence on the rise, homes sales doing better than expected, these are all indicators that the US Economy is back on track or at least moving in the right direction. All of these items are great for the stock market and bad for mortgage rates and can fluctuate every day and can be very volatile. Something the news media reported on yesterday about rates, was exactly that, news from yesterday. Rates had a dip the prior week based on world news, and by the time the news media gets this, the rates have already moved again.
It’s when we see a conflict as we did a few weeks ago with North Korea and South Korea, or Greece falling apart and even the oil spill in the Gulf, these all hurt the US Stock Market, which indirectly caused mortgage rates to drop. It is not quite as simple as this, but whenever or whatever causes the stock market to drop, mortgage rates will generally improve. Investors will pull funds from the Stock Markets and shift funds to the Bond markets and Mortgage Back Securities as they are less risky and far more stable and will do this until things settle in the Stock Market. Mortgage rates will get a very quick rally and improve on these shifts in the markets.
In general, the US and World Economy will at least remain stable and continue its slow and steady improvement. This in return will start to drive mortgage rates upward over the next 12 months. Over the last 10 years, mortgage rates have settled in around 6 to 6.5% for the 30 year fixed mortgage. It will move like a roller coaster, but in this case will only continue to climb with slight dips from time to time.
If you have any questions about mortgage rates or mortgage programs, feel free to email me or call me anytime. I can be reached at 978-264-4803 or via email at bill@billnickerson.com
Bill Nickerson
179 Great Road, Acton MA 01720
978.264.4803 (o) 978.273.3227 (c)
Providing Mortgages Since 1991
Commercial Residential Reverse FHA/VA
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