Economic Uncertainty and Mortgage Rates

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blog-author-clayjeffreys3

How does economic uncertainty impact mortgage rates? I’m glad you asked!

In general, when the economic outlook is good, investment dollars go into stocks. As money goes into stocks, there is less money available to go into bonds. This flow of money causes stock values to rise, and bond prices to fall. As mortgage backed security bonds (or MBS Bonds) values fall, interest rates rise.

Some recent recent examples:

  • Brexit Vote: when the UK voted to leave the EU, that sent shockwaves through the world financial markets. Stock markets around the world pulled back, and bond prices went up. Mortgage rates improved until…
  • US Presidential Vote: Mortgage rates soared as stocks soared after Trump was elected president of the United States. Seems stocks felt Trump’s election would be a boon for business in the US. Stocks flirted with all-time highs day after day once Trump won the election. With this much money going into stocks, bond prices dropped, and mortgage rates increased by over a full point (from low 3’s to mid 4’s) in the weeks following the election.
  • US Presidential Inauguration: as the nation gets ready for the 45th President of the United States, there are signs the honeymoon period is over. A recent article said Trump would have the lowest approval rating of any President at inauguration. The gains in stocks have slowed, and there is growing concern about the “trade war” rhetoric. Maybe a trade war works out in the long run, but the short run in hurts business, hurts investments, and can cause a recession. With these thoughts in mind, we’ve seen stocks pull back over the past couple of weeks, and mortgage rate have improved.

What does the future hold? For those wanting to see lower rates, economic uncertainty is a main contributor to rates improving. It is no coincidence that all-time lows in mortgage rates occurred during the Great Recession. It is also no coincidence that mortgage rates haven’t dramatically improved since the economic recovery from the Great Recession has been slow and painful for many. And there in-lies a great dilemma… the quickest way for mortgage rates to improve (outside of Governmental influence such as Quantitative Easing) is from economic hardship. While low rates are great, in the long run, a sluggish economy isn’t great either.

Looking to buy or refinance a home? If refinancing, sitting and waiting isn’t a bad idea. I am currently watching rate for several clients in hopes they continue to drop. Once we hit our target rate, we get started. If buying, this is trickier as you can’t sit and wait for a long time on rates when there is a closing date involved! This is where our FREE one time rate float down comes in handy. Ask me about it! If the home is in the state of Georgia, contact me. We can get started today on your loan.

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One Response to “Economic Uncertainty and Mortgage Rates”

  1. Volatility Reigns | The Mortgage Blog Says:

    […] Professional, Honest Mortgage Advice from Dunwoody Mortgage Services « Economic Uncertainty and Mortgage Rates […]

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