I’m assuming most everyone reading this is aware that the Federal Reserve has raised their benchmark interest rate several times last year. On top of that, they have given some indications that they will likely raise rates again, possibly multiple times, this year. Although the Fed chairman did appear to walk that prediction back recently, so now we aren’t sure what their plans are.
Mortgage rates don’t move in lock-step with any increase that the Fed makes. However, mortgage rates have risen substantially over the past few years, rising more than a full point. The economy still appears to be fairly strong, so that may lead to further increases in mortgage rates.
When home prices were depressed due to the mortgage meltdown and glut of bank-owned and short sale homes, a rise in interest rates wasn’t a huge challenge. But home prices have risen drastically the last few years, so buyers were starting to hit that affordability “wall” even before rates went up. Given that home prices have risen faster than household income the last few years, when you couple that with higher interest rates, that makes it harder for buyers to afford to buy homes and we are seeing reduced buyer activity.
However, what’s changed lately is the drop in the stock market. When that happens, many investors pull money out of the stock market and look for a safer haven for their funds. Many of them go to bonds which can bring interest rates down. Bond issuers want to pay as little as possible, and if the demand for bonds goes up, they can offer lower interest rates and still sell their bonds. So we actually saw mortgage rates go down recently. And as I write this article the stock market is falling to open 2019. So we may see some further slight improvements in interest rates in the short-term.
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