How does economic news impact mortgage interest rates?

Mortgage rates are based on bonds (mortgage backed securities) and are traded fairly similar as stocks. Investors tend to favor stocks over bonds as stocks tend to provide a better return. However, investors will opt for bonds over stocks when they are seeking safety when markets are tumultuous.  When the stock market is on a run, odds are mortgage rates may be moving higher as investors are selecting stocks over bonds. And when the stock market is tanking, mortgage rates tend to improve for the same reason.

Another way to look it this is when the economy is doing well or expected to do well, mortgage rates tend to move higher. This is not only because the stock market is probably reacting favorably, it’s also because chances are, with a strong economy comes inflation. Inflation is the arch enemy of bonds as it devalues their worth. Signs of inflation will also push mortgage rates higher.

Today around 11:00 am the Fed will wrap up their two day meeting and announce whether or not they are going to raise the Fed Funds rate. It is anticipated that the Fed will not increase the rate today and that the Fed will indicate they will increase the Fed Funds rate two more times during the remainder of 2018. If the Fed pulls a surprise and either increases the Funds rate or has language that indicates higher inflation, we could see mortgage rates push higher. NOTE: Although the Fed does not directly control mortgage interest rates, many HELOCs (and most credit cards) are impacted when the Fed adjusts the Fed Funds rate as those rates tend to be based on the Prime rate which follows the Fed Funds rate.

Speaking of the Fed, mortgage rates have been moving off of the artificial lows we’ve all enjoyed to a more “normal” range with the improving economy and the Fed pulling back from buying mortgage backed securities.

On Friday morning, the Jobs Report for July will be released. The Jobs Report tends to have a big impact on mortgage rates as it’s a indicator of inflation and the overall health of the economy. If the Jobs Report shows wages increasing, it could be considered “wage inflation” which negatively impacts rates too.

As a Mortgage Originator, I pay close attention to the market news so I can have a clue as to what direction mortgage rates may be going. With that said, we never know when an economic indicator may not wind up being what the markets anticipated, which may also cause a reaction with mortgage interest rates. I share market updates on my Facebook page and on Twitter. You can also see my updates on the sidebar The Mortgage Porter.

In addition to economic news impacting mortgage rates, there are the other factors you’re probably aware of such as your credit scores, loan amounts, etc. Here’s an article I wrote detailing the 10 factors that impact your mortgage interest rate.

As always, if you’re considering buying or refinancing a home located in Tacoma, Tukwila, Twisp or anywhere in Washington state where I’m licensed, please contact me!

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