As the stock market falls, so do mortgage rates
If your stock portfolio took a hit this week and you’re feeling poorer, know there is some good news in the markets that might make you feel a bit better. That good news is that interest rates dropped this week for most types of mortgages, and are now in the upper 5 percent range for many loan types.
How, you might ask, can this happen? Good question, and one that most people don’t understand ” but it’s really kind of simple, at least the short version.
Many people who deal with large amounts of money on a daily basis swear the stuff has a life force of its own, and in a way it does. Money buys stuff, and if people don’t have money, nobody buys anything ” including oil, steel, plastics, building materials, mansions in Beaver Creek or lift tickets. Money may not buy happiness, and according to many who have it, does not buy security (because once you have money you have to worry about losing it).
However, having been both rich and poor in my life I’ll take worrying about losing my money any day over worrying about not having any. And when looking back at the family albums I have to say we all look happier (in fact, we sometimes look downright deliriously happy) in the pictures taken during the good years than the ones taken in the bad years.
But, back to my point this week, how does adverse economic news help interest rates? It boils down to investors who hate uncertainty, and when the Dow Jones is plummeting like a rock, there are a lot of people out there who want to keep the family albums full of smiley faces.
To assure this, they park their money in something less volatile. Even if the potential profits are less, so is the downside. As a result they choose to infuse huge amounts of cash in the bond markets, and that means demand will outstrip supply and the price of bonds will go up and yields will go down. That means that mortgage rates go down as well.
The perverse thing about being in the mortgage business is that we just love bad news ” it’s great for business. Unemployment is up? Take the office out to lunch! If a blue-chip company announces thousands of job cuts we plan on an increase in business. It is not that we are a heartless industry and don’t care that people are losing their jobs or that investors are losing money, it’s just the way the markets work. Bad economic news just plain lowers interest rates for mortgages.
Now there is a point whereby if unemployment goes high enough and the market low enough the supply of money in the markets will dry up and rates could rise, but that is unlikely to happen anytime in the next several years. There is just too much investment capital out there that has to stay in motion.
So if you got caught short in the market this week and need to borrow some cash, at least it will cost you less than last week.
Chris Neuswanger can be reached at Macro Financial Group in Avon at 970-748-0342. He welcomes mortgage-related inquiries from local readers.
Support Local Journalism
Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.
User Legend: Moderator Trusted User
Vail’s updated plans regarding the state guidelines and isolation housing requirements is one of several pieces of information guests are waiting on heading into the 2020-21 season.