Posted by admin on March 20, 2018
How Does the Stock Market Affect the Mortgage Industry?
The stock market and mortgage rates often seem to move together, in similar ways. However, this does not mean that one directly affects the other; rather, both the stock market and mortgage rates respond to the same overall conditions in the economy, which can give the impression that they are dependent upon each other. Once you know this, you can begin to pick up on some of the larger patterns that may affect your investments and your mortgage around the same time.
Stocks and Bonds
Mortgages are packaged as bonds, which are dependent upon the yield of the US treasury. According to conventional wisdom, when the stock market is high investors sell bonds and invest in stock. Conversely, when the stock market is low, investors put more money into bonds. If this holds true, then mortgage rates should be lower whenever the stock market is low.
However, this is not always the case. Beginning around 2009 in the United States, interests rates went down at the same time the stock market was going up. At this time, economic conditions were such that both stocks and bonds were being purchased. While this is a relatively uncommon occurrence, it goes to show that mortgage rates and the stock market do not have to be directly correlated.
Other Factors that Affect Mortgage Rates
Many factors unrelated to the stock market can also have an effect on mortgage rates. These include inflation expectation and regulatory changes to the economy. Any changes to Fannie Mae or Freddie Mac, the largest investors in mortgage backed bonds, can also have an affect on overall mortgage rates, even those not directly associated with those investors.
In general, a healthy economy with low interest rates leads to a healthy housing market. However, there will never be an exact correlation between mortgage rates and stocks or any other aspect of the economy.