After weeks of hovering, U.S. mortgage rates made a slight declined this past week, according to Freddie Mac.
For the week ending Dec. 6, the 30-year fixed mortgage averaged 4.75 percent, a decrease of .06 percent from 4.81 percent the ending November 29. Just 12 months ago, mortgage rates were at 3.94 percent.
The lower mortgage rates have helped the US housing market recover from the recession of 2008. A shortage of housing inventories combined with low-interest rates allowed housing prices to climb into and above pre-2008 prices through the first quarter of 2018. Then flatten and even drop in some areas of the US as interest rates started climbing throughout 2018.
Freddie Mac’s chief economist, Sam Khater, said the dip in mortgage rates came amid a steep sell-off in U.S. stocks.
Falling stocks mean lower rates
How are stock market losses good news for mortgage borrowers? Quite simply, it causes investors to panic and sells off. The money from this mass sell-off doesn’t get reinvested immediately, instead, it sits in an account earning next to nothing in a bank account.
Large portions of this sell of will end up in long-term CD’s (Certificates of Deposit) where the money becomes readily available to lenders at a very low interest rate.
There is more – increased bond prices mean lower rates
Bonds yield very, very low returns but they are safe. When investors get worried about losing their money they will put it where it is safe, even if there is little or no potential increase. Their logic is not to grow their portfolio, rather keep from any further losses they may experience.
How do higher bond prices cause falling mortgage mortgage rates?
It’s just math. Treasuries are issued at so-called “par” pricing in $1,000 increments. So you might buy a bond paying 3 percent interest, or $30, for $1,000. $30 a year divided by $1,000 = .03, or 3 percent.
But if events make investors and institutions concerned about protecting their principal, they may sell their stocks and want to buy your bond instead. And when money people want the same thing, you can charge a higher price for it. So you sell your $1,000 bond paying $30 a year for $1,200.
But the interest rate changes. Because the new owner still receives $30 a year, but he or she paid $1,200. Amd $30 / $1,200 equals 2.08 percent. The higher the price, the lower the interest rate.
Stock prices won’t stay low for long and neither will the interest rates.
Every time stock prices drop they will often rebound fairly quickly. Don’t expect the stock market to stay down for long, nor the interest rates. if you are in the market for a new home, refinance or home equity loan there is no better time than now.