What Drives Interest Rates?
There are multiple factors that impact mortgage rates, and various triggers can cause them to oscillate up and down.
- INFLATION: The impact of inflation is significant for mortgage lenders as interest rates tend to increase when inflation rates surge.
- FEDERAL RESERVE: Although the Fed doesn’t have direct control over rates, changes in the Fed funds rate have a ripple effect on various markets that can ultimately influence mortgage rates.
- ECONOMY: An increase in gross domestic product (GDP) and employment is indicative of economic growth, resulting in an upsurge in real estate demand. The increased demand, however, causes interest rates to rise due to a shortage of money to lend.
- INVESTORS: In times of weak economic outlook, investors tend to gravitate towards the bond market as it is considered a relatively secure investment option. The heightened demand in bonds leads to an increase in bond yield, which consequently results in a decrease in mortgage rates.
Why Interest Rates FALL?
- Assumption Fed will maintain low short-term interest rates
- Less demand for mortgages due to slow housing market
- Lower employment levels and wages in a declining economy
- Low stock market causing higher bond prices and lower rates
Why Interest Rates RISE?
- Increased investment in stocks over bonds by investors
- High number of bonds being auctioned, resulting in lower bond prices and higher interest rates
- Increased wages and employment leading to higher consumer spending and a boost in the economy
- A rise in the stock market causing a drop in bond prices, leading to higher interest rates.
Information contained is intended for general information and is subject to change without notice based on market volatility.