Mike: Why was I quoted a rate of 5% yesterday and 5.25% today? Do rates change that fast?
Brandon: Mike, Interest Rates change constantly, just like the stock market. There are certain economic indicators, such as unemployment data, consumer price index, retail sales and consumer confidence, that effect interest rates. A good rule of thumb is that, in most cases, you can watch the relationship between stocks and bonds. When the economy is slow “bearish” investors move money out of stocks into bonds or mortgage backed securities, causing rates to decrease (or improve). When the stock market is going up “bullish” investors move money out of bonds which is considered a safe investment, and back into the stock market. As a result mortgage rates increase as the stock market increases.
Imagine that you had $1, and were deciding whether to hold on to it (no change) put in the stock market (help the stock market out) or put in the bond market (help rates out). Once you do that someone is benefiting. If you then put the money in the bond market and help rates improve but then take it back out there is a negative impact with bonds and rates increase. That is what we are seeing now with money moving out of bonds, causing stocks to increase. The government is still buying bonds to keep rates down but as we have said this will not last.
Brandon is a branch partner at Alcova Mortgage. He enjoys doing his taxes, firewalking and competitive eating, but not necessarily in that order. You can reach him at email@example.com, or 877-552-7150.