Friday, April 6, 2018

What Drives Mortgage Rates?

Below is some information on mortgage rates from one of my preferred lenders, David Duty with Guild Mortgage.

As you may be aware, interest rates have been steadily increasing over the last few months.  Since most buyers are facing rates in the upper 4% to lower 5% range, I wanted to give a reminder on what is driving this push and where we are likely going from here. 

The graphic below shows what news will likely make rates go up or down.  The first thing to remember is that nearly all conventional (Fannie Mae/Freddie Mac) and government (FHA, VA, USDA) loans are sold on Wall Street as mortgage-backed securities (MBS’s).   If you’ve ever accidently clicked past CNBC on your way to the Blazer game (or The Bachelor), you’ll see detailed results for both the stock and bond markets. In general when the economy is booming Wall Street investors are making money in stocks, and when the economy is slow those same investors are playing it safe by buying bonds (or MBS’s).   The more the economy gets healthy and the more investors buy stocks, the higher mortgage rates typically go.  One big factor to keep in mind though--the single biggest enemy of MBS’s (and low interest rates) is inflation.  While the Feds are raising the bank-borrowing (and Prime) rates to control inflation, it’s the one thing to keep your eye on.

So where will the rates go from here you ask?  Given the persistent worries about inflation and the low unemployment forecast, most economists see mortgage rates continuing to rise.  How much will depend on all the factors listed on the graphic. I wouldn’t hesitate to encourage rate sensitive buyers to buy now instead of later.  You just can’t argue with the numbers.

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