Did you know that there are 13 stock exchanges in the world? Also, did you know that these all have a market capitalization of more than one trillion dollars?
That is right. We all knew that the stock market is important, but it is a lot more than that. It is revealing traits of economic regulation around the world.
Stocks do more than fluctuate their values. They also affect other parts of the economy.
One of the most impacted parts of the economy is mortgage rates. Stocks fluctuate mortgage rates as they change.
But how does this happen? How does the stock market impact mortgages?
Keep reading to find out.
How Daily Mortgage Rates Change
Many factors influence mortgage rates. There is not one economic indicator that can tell us how mortgage rates are going to change over time.
Equity markets complete for investor dollars, just like mortgages and bonds. In fact, these accounts are competing for the same investor dollars. So this may make it look like investors are selling their bonds to take advantage of rising stocks.
In fact, these bonds that individuals are selling may cause the mortgage rates to increase somewhat. This situation happens because these bonds that consumers are selling are freeing up cash in the system.
However, this interaction does not mean that the stock market has complete control over the daily mortgage rates. There may be some kind of technique when it comes to watching the stock market and predicting mortgage rates.
Keeping an eye on how the stock market moves may give market experts some clues in terms of what to expect for mortgage rates, but this is indirect.
The stock market gives us clues about other factors that may push mortgage rates higher or lower.
Mortgage Rates vs. Stock Market
The stock market fluctuates every day due to various factors, including global, economic, and political scale.
Generally, a rising stock market tells us that there is optimism among the current investors. In particular, this optimism is towards the economy at that point in time.
However, this can change at any time.
Even a negative news story about the country’s finances can turn the entire market around. They may talk about a debt crisis in the country or an increase in unemployment. These kinds of stories can cause stock prices to drop as optimism about the economy drops.
When it comes to the stock market, it may be a stronger indicator of the spirit of the people than anything else.
There is one strong tie to mortgage rates. That is through bonds.
When investors sell their stocks, they turn into bonds. When the demand for bonds is high via stocks that investors sell, bond yields drop.
The bond market is a stronger indicator for the value of mortgage rates at a particular time. Although, you should remember that there is no single influencing factor that can predict mortgage rates.
The Relationship Between Mortgage Rates and Bonds
So, the stock market is not directly related to mortgage rates, but why do so many people believe this?
Both the stock market and mortgage rates rise and fall with the basic movement of the economy. When things are going well, both the stock market and mortgage rates tend to rise. When things aren’t going well, both the stock market and mortgage rates tend to fall.
When the country is in a time of economic downturn, investors want to find a way to keep their money safe. So they opt to move their money into safer investments like bonds.
Bonds give investors a guaranteed repayment. They are also guaranteed to earn interest from government organizations.
Stocks do not guarantee the same rewards. So investors would rather take the guarantee in times of economic uncertainty. Since stocks can fall to zero completely, investors want to avoid this complete loss by making a move to bonds.
As more and more investors pull their money out of the stock market and put it into bonds, the demand for stocks falls. Therefore, the prices in the stock market fall as well.
With all these relationships in mind, it is essential to look towards bonds as a more significant cause for daily mortgage rate fluctuation.
If you are interested in how these fluctuations can affect your monthly payment, check out our mortgage calculator.
Daily Mortgage Rates and the Economy
As we have said, stock prices change for multiple reasons, and the stock market only somewhat impacts mortgage rates.
This situation is a different story when it comes to mortgage-backed securities.
You may think that the majority of mortgage funds come from banks and credit unions that are not affiliated with the government. Thus, these should not affect the stock market.
Much of the mortgage money in circulation is supplied through the sale of loans to individuals who make mortgage bonds. You may have heard of these mortgage bonds as their more famous names, “Fannie Mae” and “Freddie Mac.”
The demand among investors who want to purchase these bonds will influence mortgage rates more than other factors.
If the demand for mortgage bonds is low, mortgage rates increase to entice more investors to put their money into the system. On the other hand, mortgage rates stay low if there is high demand or limited supply.
To stay up with today’s mortgage rates, you should watch the rates on Treasury bonds. This strategy is better than trying to follow the stock market.
Get Your Mortgage Today
The relationship between the stock market and daily mortgage rates isn’t as crystal clear as experts wish it were. But the relationship between mortgage rates and bonds may offer a better look into the future of mortgage rates.
If you are looking to find a mortgage that works for you, you can count on our team here at 7th Level Mortgage. We offer a variety of mortgage products that you can choose from.
Do not hesitate to get in contact with us. We cannot wait to get to work!
7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with each mortgage transaction phase. If you are searching for a home loan in New Jersey, Pennsylvania, Delaware, Maryland, New York, or Florida, please contact us today so that we can determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.