Emotions Impacting Interest Rates

by

While the nation was focused on the Presidential election, many may have missed a story about interest rates. On Tuesday, November 6th, the bond markets had a horrible day of trading, and it pushed interest rates higher by 0.250% of a point in most cases.

Is this the end of low rates? Nope… 24 hours later, the exact opposite is occurring. Interest rates are back down to near historic lows having made up the ground lost on Tuesday. Stocks on the other hand are taking a beating down 250+ points as of this post.

Some people think interest rates are based on the time of year. Others may think if mortgage applications are down, then banks lower interest rates to get them back up again. The truth is that interest rates are based on mortgage backed security bonds and their values. As bond values go up, the interest rates go down. So what happened on Tuesday?

With Election Day upon us, bond investors began to worry about a possible status quo change. What happens if Romney wins? What happens if the Republicans take control of the Senate? Would current policies change and impact the markets? What does this positive jobs report mean? Out of potential fear, there was a big selloff on bonds. When bond values drop, interest rates rise.

As you know by now, nothing has changed in D.C. Obama won, the Democrats still control the Senate, and Republicans control the House. With this uncertainty behind us, all eyes are turning toward the “fiscal cliff” coming our way and bad news in Europe. Investors are now panicking for other reasons, stocks are getting hammered, and some of the money coming out of stocks is going into bonds. Bond prices are moving up, and mortgage rates back down to near historic lows.

What does all of this mean for you?

Interest rates can be fickle as the bond market can quickly change depending on recent news and investor emotion. If you are hoping and waiting for a particular rate, you can’t get much better than near historic lows. If you’ve been holding off on a refinance waiting for a rate, or hoping rates get better before buying a home, the timing is good to move forward now. Rates are unpredictable, and better to be cautious and grab what you know is true now than hope for something in the future and miss out. If the home is in the state of Georgia, I can help you get started.

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