Market volatility helps bring rates lower
June 18, 2009 by admin
The volatility in the stock market has helped mortgage rates to reverse course and move lower. The stock market has rallied strong, since touching a low point in early March, climbing almost thirty six percent heading into June. The dramatic increase in the market, combined with rising commodity prices have been a major factor in driving long term fixed mortgage rates to move higher. The yield on the ten year treasury bond rose just above four percent this month, but has now dropped over thirty basis points, helping to bring down long term rates in the process.
The housing market has been a major benefactor of the historically low rates available this year. Fixed rate loans were at or below the five percent range for almost the entire first quarter of the year, spurring a refinance boom in the mortgage market while providing another piece of ammunition to help fix the housing crisis. The dramatic drop with interest rates could be directly tied into the Fed’s decision to begin purchasing mortgage backed loan securities and the rapid drop in the equity markets.
Historically, today’s mortgage rates are amongst the lowest levels recorded in the past thirty years. The economy continues to provide mixed signals as to how quickly we can expect the current recession to come to a close. Job losses, totally over six million in the last year and a half will continue to pressure growth. Recently, the stock market has surged, as investors have regained confidence in the prospects of future growth opportunity. Eliminating the fear of failure for many investors has been a critical factor in their return into the equity markets, as well as inflationary concerns driving up yields in the bond market. The improvement in the stock market has also lifted oil prices sharply, to over $70 per barrel. These factors have played a role in helping to raise interest rates from their historic low levels.
The recent pullback in the market has been expected by a number of market analysts who believe the record rally will lead investors to pull in profits and begin to view the market more cautiously moving forward. Today, more investors are reading the critical reports (housing starts, CPI, etc) and analyzing corporate earnings as they move in and out of equity positions. The recent drop in the market has helped bring down fixed rate loans by almost ½ percent and should provide a good baseline for trading in the near future. Expect they equity markets to remain volatile and mortgage rates to move between 5.5% on the low end 6% on the high end, while the market awaits the next critical news that could move it past one of these critical levels.