Mortgage Rate Trends and Influences
Changes in mortgage rates mirror the movements in the 10 year Treasury Note Yield. Therefore, it is important to watch the trends that are developing in the 10 Year Note Yield so that you can have some idea as to where mortgage rates are going. You can identify trends that may influence your taking action to lock a loan. On the other hand, you may find it better to just wait it out, hoping that rates will come down. This is not an exact science, it is only a tool so that you can make a better decision. I think that it is important to have a loan consultant who is capable of showing you what is happening with rates. You may find that it will save you money in the long run.I have inserted a chart of the 10 Year Tresury Note Yield below:
You can see by the blue line that the yield moved above a critical point in June and ran to a five year high touching 5.3%. The red lines identify trends. We have a upward trend from March that has not been broken. Additionally, there is a short term trend to the downside. I would suggest that if the yield falls below 4.9% we could test the upward trend (by approaching the uptrending red line). A move above 5.1%, from the current position, without breaking the blue line, would suggest that rates will worsen. A chart is just a reflection of a changing economic environment which can be influenced by many factors..
Here are some of the influences on interest rates:
The Federal Reserve Board controls the federal funds rate. The Federal Reserve Board (Fed) has the power to raise or lower the federal funds target rate (Fed funds rate), which in turn influences the market for shorter-term securities. The Fed funds rate is the rate banks charge other banks for overnight loans. The Fed may raise the rate to keep inflation in check, to slow the economy or it may lower the rate to stimulate the economy. You should recognize that the Fed doesn’t have much control over long-term interest rates. This can be seen by the fact that the Fed raised the Fed funds rates for a long period of time and mortgage rates and long-term interest rates stayed about the same. The Fed could start to lower the Fed funds rate to stimulate the economy and long-term rates or mortgage rates may not move down. Long-term rates are market driven. Long-term interest rates, as represented by yields of the 10-year or 30-year Treasury bond, tend to move in anticipation of changes in the economy and inflation. The market is driven by inflation expectations, perceived changes in the economy, the strength of the dollar (which can impact demand for our Treasury securities). World economies and interest rates can also drive our markets. Higher interest rates abroard can cause competition for the sale of our Treasury Bonds and can cause our rates to move higher.I hope you find this article of interest, my intent is to keep you informed. If you have any questions or comments please click on comments and let me know what you are thinking.
January 30th, 2008 at 4:39 pm
[...] For a further discussion of the actions of the Fed and mortgage rate trends click here. [...]