Why Mortgage Rates Change
Why mortgage rates change — we’ve all seen the advertisements in print and on television that claim “mortgage rates are at historic lows.” The truth is mortgage rates are in a constant state of flux, and changes may be small or large, depending on a host of different factors.
Changes in economic growth are a primary reason why mortgage rates change. An increase in economic growth will increase the general level of interest rates in the economy — mortgage rates included. Conversely, a decrease in economic growth and activity will bring mortgage interest rates down in order to spur an increase in sales.
The Federal Reserve can have an impact on mortgage rates, because they adjust the amount of money in the economy (money supply) in order to stave off inflation and other economic shocks. By removing money from the economy, interest rates will rise and by flooding the economy with money, inter/est rates will fall.
Mortgage Market Conditions
Mortgage interest rates are also influenced by developments in the real estate industry. For example, if mortgage lenders observe an increase in sales and building activity, they will expect the demand for mortgages to increase. This will move mortgage rates higher. On the other hand, a decrease in sales and construction of new homes usually indicates a weaker demand for mortgages, which may drive rates down. The Real estate market is inversely related with the mortgage banking industry.
Paying attention to the three factors above can help you make a more informed decision about the timing of your home purchase. However, it is advisable to always speak to a mortgage banker before considering a home purchase, they can help you make a truly informed decision.
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