A lot of my clients ask me... "Keith, why do rates fluctuate on a daily basis?" ...A lot of people ask me this with a lot of suspect...Some are very skeptical, that somehow, I am not being completely forthcoming with the rates I have on a particular day since I can quote them a completely different rate the very next day...
Rates do fluctuate on a daily basis...Not until you "lock" the rate in (on a purchase we can only do this when we have a fully executed purchase contract) is a "rate" actually the rate you will get...
"Rate Quotes" are only a "snapshot" in time....
With this being said,... What are most mortgage rates tied to determine how and why they fluctuate?
The "run of the mill", 30 year fixed, conventional, fully conforming type loans are tied to or "typically" track with the rate fluctuations of the 10 year treasury bond which is part of the "bond market"...
"Usually" When the 10 Year treasury note (bond) rates are up so are mortgage rates. "Usually" when they are down so are mortgage rates
The bond market is a more stable, less volatile, and generally safer short term investment for investors...Investors tend to throw their money in the bond market when there is less confidence in the rest of the economy and specifically the stock market...So when the stock market is down to low trading volume it is because investors are holding in the bond market...When more money is in the bond market the lower the rates are in the bond market and hence the lower the mortgage rates are...
When there is more confidence in the economy and investors feel that the stock market is a better place to make money they pull their money from the bond market and invest in the riskier stock market...When money is pulled from the bond market the bond rates go up and so do mortgage rates....
You can see that it is a double edge sword...If you are using the trading volume in the riskier stock market as an indicator how well the economy is doing, logic would dictate that if more investors are in the stock market there is more confidence in the economy and over-all the economy is growing and in better condition...But this means that mortgage rates tend to go up as well.
When there is less confidence in the economy and the economy not doing so well, investors want their money to be safer so they put it into the bond market...which lowers the rates on bonds and hence lowers mortgage rates as well...
So this means that when the economy is good mortgage rates are up...it also means that when the economy is not that good then mortgage rates are down....at least this is a "general" rule
The above is a 6 month snap shot of the 10 year treasury bond market courtesy of of Yahoo Finance.
As you can see the 10 treasury note is creeping back down after an upward trend since the beginning of December 2006... This means investors are starting to pull money back from the stock market and starting to put it back into the bond market which lowers the bond rates and hence the mortgage rates...
At the same token that means there is "less confidence" in the economy as a whole and investors want their money to be safer...
So as you can see... lower mortgage rates are never a sign of a real strong or growing economy...When mortgage rates go up it is "usually" a sign of a healthy economy. This is usually the "rule" just as long as "inflation" does not get way out of control which can be bad an also raise interest rates extremely High (just think of the late 70's and early 80's)
Think about what happened to the stock market right after 9/11...It almost crashed...Investors pulled all their money out and threw it into the bond market....What happen to mortgage rates right after 9/11? We had the lowest mortgage rates in 45 years and it spurred a huge refinance boom...
Now the Economy has healed from 9/11 and mortgage rates are at point that represent a fairly healthy economy over all...That's the good news
If you'd like to learn more about the loan programs we have available, please call me!
Keith Gill
Certified Mortgage Consultant
Phone: 520-979-0545
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