July 30, 2011
Most mortgage interest rates are based on what mortgage bond traders are buying and selling mortgage bonds. When traders are buying bonds, the prices and yields go down.
Lower bond prices will give us lower mortgage rates. And if traders are selling bonds instead of buying, rates and pricing worsen.
What typically causes the bond traders to buy and sell? Market conditions. Turmoil in the United States, both political and economic, will affect the bond market as well as worldly issues.
Today, we have instability in most of the oil producing nations in the Middle East. This is spooking the financial markets. Higher oil prices will hurt our economy and in turn hurt the financial aspects of most companies. If an investor sees the value of his stocks going down, he may put his money in mortgage bonds. If there are more buyers than sellers for mortgage bonds, the yields and rates go down.
Watch in the upcoming weeks how mortgage rates and oil run in opposite directions. As the price of oil rises, the negative effect on the stock market will be evident. The negative impact on stocks will force investors to find a safety net for their money – Mortgage Bonds.
Higher Oil = Lower Rates!
Mike Stevens, COO
Southwest Direct Mortgage