I posted the following blog some time back and thought current events give a very good illustration of how geopolitical and global economic events are influencing interest rates today. In recent weeks, we've seen interest rates fall to their lowest levels in 18 months. While this is partialally due to the more traditional ebbs and flow of the world economy (i.e. economic slowdown in Europe), much of the nervousness in the economy is related to ISIS, Ebola, and sactions placed on Russia. When the investment community is uncertain about not only the economy home and abroad, but other factors such as the previosly aforementioned, they seek a safe haven for their investments; namely US Government Treasuries. Simple supply and demand; when treasuries are being snapped up, the rates are driven lower.
The health of the housing and mortgage market is largely predicated upon mortgage interest rates. In a nutshell, when the economy is strong; interest rates rise, when the economy faulters, rates fall. This is mainly because the federal reserve is tasked with fostering steady economic growth, devoid of major meltdowns, or run away growth/bubbles. I'd argue they do a poor job of it, but that's a subject for another blogpost. Often times, we professionals in the industry root for poor economic news, rogue states like we're seeing in the Ukraine, tsunamis, government defaults. Why? Because these events all result in falling interest rates. One of two things happen; in the case of turmoil in the world, investors seek what is called "save haven" investments. That's to say, investment vehicles that are considered the safest place to park your money. You guessed it, that is often US government treasuries, which have a substantial influence on the direction of mortgage rates. Secondly, when the economy is faultering, the federal reserve will pump money into the market by purchasing treasuries, or mortgage-backed securities. So the next time you turn on the news and there's a flood, tsunami, war, or the like, call your mortgage banker - rates may have declined.
I've been a mortgage banker with a keen interest in economics for over 25 years. My business is centered in New England, however I'm happy to asisst with mortgage financing throughout the country.