The flutter of economic activity around the world has certainly caused a whirlwind of market and home loan rate movement in the last few weeks.
It’s a Small World After All
Greece was the word on investors’ minds … or Grexit (Greece’s potential exit from the European Union). The people of Greece voted “no” to further austerity measures, leaving the Prime Minister scrambling to come up with a plan to keep banks open, get bills paid and instill hope for the future. Despite Greek sentiment, an 85-billion Euro bailout proposal by Eurozone leaders required higher taxes, reduced spending and pension cuts, among other things.
And if that weren’t enough, the Chinese Stock market was in turmoil for weeks.
Finally, oil prices plummeted due to increased oil production in the U.S. and abroad, stockpiles of oil in China and Iran’s intent to increase exports.
So what does all of this have to do with home loan rates? Simply put: When investors get nervous about the economy, they move dollars into less risky investments, (temporary financial safe havens, if you will). Often, this less risky investment is a type of Bond called Mortgage Backed Securities (MBS), which are tied to home loan rates. When MBS prices rise, home loan rates improve and move lower.
On the flipside, once economic uncertainty lessens, dollars are then often moved back to riskier investments, like Stocks. This seesaw trading pattern has been especially volatile in recent weeks with all the uncertainty overseas. As a general rule, Stocks benefitted when optimism for a deal out of Greece began to rise, while Bonds and home loan rates improved when the headlines were more ambiguous.
The Bottom Line
Even though market volatility has heated up this summer, home loan rates remain attractive compared to historical rates. If you have any questions about the housing market and home loans, please don’t hesitate to contact me. I hope you enjoy this month’s issue of YOU Magazine.
This article was taken from my August 2015 issue of YOU Magazine. Click here to view the full newsletter.