Here's a perspective from a mainland lender who keeps it short and simple. I just saw his blog post and whatdya' know, interest rates jumped almost 7/8 of a point today. Gosh, that really hurts. I'm sure those who are in escrow with interest rates locked in are feeling pretty good tonight, but it's not good for the overall market.
I am not one that likes to make negative predictions, but the recent financial news leads me to conclude that mortgage rates will be going up. For those who are ready to buy or refinance, I believe now is a good time to lock in your interest rate.
If you want the long version, read on:
Normally a drop in the stock market leads to lower mortgage rates. This is because investors get worried about the future returns from their stocks, and decide instead to put part of their money into guaranteed returns of bonds, including Mortgage Backed Securities. With supply and demand, the price of the bonds goes up- which results in lower interest rates.
In the last few days, In order to finance all their new acquisitions and bailout programs, the government has flooded the market with new bond sales; this has resulted in lower prices for the bonds- which means higher interest rates are being paid.
So now that the Government bonds are providing the funding for the stock market, it gets really confusing. A drop in the stock market no longer equates to a drop in interest rates.
So, as I had stated before the bailout, with all the funding that the government is going to need, bond rates are likely to continue up. And, when the stock market hits bottom and turns around and rallies, rates will really go up.
I have often given opinions about the direction of mortgage rates, with the disclaimer that I don't own a crystal ball, but I need to add my second disclaimer: When I got my degree in Finance, we only studied Free Markets, so I am now totally beyond my area of expertise.
Ron Margolis, RA, CDPE, ABR Hawaii Life Real Estate Services 808.346.7095 email: email@example.com