I am going to try my best to explain a rather confusing and odd set of circumstances surrounding Mortgage Interest Rates.
Try to follow this very unconventional logic as to what is happening:
- The Federal Reserve after all-time record breaking LOW interest rates are now going up. As recently as March of this year The Federal Reserve has raised their short-term interest rates that it charges banks.
- Conventional wisdom is that individual mortgage rates follow what is going on with The Federal Reserve. As “The Fed” increases its rates so do the banks. Right?
- Not this time – the average typical home mortgage rate has actually been dropping in the recent past. This is happening at the same time as The Fed rates are going up.
- Current interest rates have fallen back below 4% and that is at the same time as The Fed is raising rates and they have also indicated they will raise rates again very shortly.
Vermont Modular Homes is in the housing business and we, along with everyone else, know that very small changes in the interest rates can have a HUGE impact on whether people buy or sit on the sidelines.
So…………, what is going on?
- YES, mortgage interest rates are connected to The Fed’s short term rates.
- BUT, interest rates for home mortgage rates are also very closely tied to The U.S. Government Ten Year Bond market.
Here’s where it gets a tad sketchy……………………
- Reason one - Investors with huge amounts of money see the Ten-Year Bond market as a much safer place than today’s volatile stock market so, they are investing their money in Bonds, all that input of cash is driving interest rates down.
- Reason two – investors with massive amounts of money see the current political landscape in the U.S. as unpredictable therefore, they are investing huge amounts of money in the bond market because they see it as safer.
The end result is that for the moment mortgage interest rates are dropping and that is a good thing for you. If we knew how long this was going to last we would be considered financial experts and could make millions. We are not so…………, oh well.