What Influences Mortgage Rates

The financial world is all-abuzz with how low mortgage rates are, but do you know what causes rates to be low? Is it:

A. The supply of available homes vs. the number of buyers

B. The Fed’s strategy

C. Economic uncertainty in Europe

D. Both A and B

E. Both B and C

Any of the above answers might be correct, but the closest would be E: which actually translates into economic factors. Mortgage rates are influenced by a number of factors, including policy decisions from the U.S. Federal Reserve and the overall economic picture both in the U.S. and abroad.

The Fed has been keeping long-term interest rates low, in part through its Operation Twist program. Operation Twist involves the Fed buying long-term securities and selling short-term debt. This program is set to expire at the end of this month. However, there has been discussion of the possibility of extending the program or taking other steps to keep long-term interest rates low.

Uncertainty in Europe has investors moving their money to safe havens, pushing yields on investments such as 10-year Treasury notes downward. The secondary mortgage market uses yields on the 10-year Treasury as a barometer of how to set 30-year fixed-rate interest rates. Right now there does not seem to be a clear picture of how things will play out in Europe, so investors could be playing it safe for some time.

The Mortgage Bankers Association expects the 30-year fixed-rate mortgage to end the year at an average 4.2%. That’s higher than current rates, but still relatively low. Freddie Mac’s most recent projection also pegs the 30-year fixed-rate mortgage at 4.2% by year-end. For borrowers, that means low mortgage rates aren’t expected to go away anytime soon.

Meanwhile, Denver has been cited as the best place to buy real estate either for your home or as an investment. Across the eight-county Denver-Aurora area, an estimated 3,702 new and resale homes were sold in April. While this figure is down 1 percent from March, it is up 9.1 percent when compared to rates experienced in April 2011. Housing experts declared this year’s slight sales rate decrease between March and April to be normal. In addition to rising home sales levels on a monthly and annual basis, the sales rate experienced for the first quarter of 2012 rose 11.2 percent to 12,646 compared to the same time period last year. (source: zipreality.com)

For buyers, this means that it may not be wise to play a game of waiting for rates to fall even lower.

Get the edge on your home purchase. Come talk to our home loan consultants about a pre approved loan, before you begin shopping for a home.


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