Texas Mortgage: What is making these mortgage rates go up?

Texas Mortgage: What is making these mortgage rates go up? 

 In short: Positive economic news makes mortgage rates go up & bad economic makes mortgage go down.  So as you are deciding to buy a home, refinance or do a cash out refinance it’s important to know what’s driving this crazy mortgage market.  Understanding the mechanics of the mortgage market isn’t really that hard when people understand the “flow of money.”

Picture a backyard swimming pool and  Jacuzzi/hot-tub. Just the all-American kind where there’s a nice swimming pool with an adjacent hot-tub.  Here lies two inter-dependent bodies of water.  Normally when one gets out of the cold swimming pool they move to the Jacuzzi. Or perhaps they get out of the hot tub and return to the refreshing swimming pool. There’s a constant back and forth relationship to these two pools, isn’t there? Back and forth.  Back and forth. Flow.

The money market works the same way.   There’s a back and forth flow of money..  First, there’s the stock market (swimming pool) and then there’s the bond market (hot tub).   Typically, money moves out from the stock market to the bond market…or from the bond market to the stock market.  When money leaves one, it (typically) moves to the other.

So when the stock market gets “cold”—or when the stock market investors feels uncertainty by something negative in the economy, money will move OUT of the COLD stock market and into the nice, secure BOND market.  These investors are “warmed” by the nice, certain—usually low-returns of the bond market.   The bond market investors reason “I’d rather get a low, predictable return on my money than lose it altogether.”

 However, when the bond market’s “security” get’s too warm…or people become willing to risk higher returns, they’ll often move out of the bond market and into the stock market.  They do this because there’s a greater return for their market.  They want some “splash”—they want to buy Bank of America (BAC) at $10 and see it move to $15/per share.  Who wouldn’t?

So it’s the temperature that really drives the market—when the economy is cool and the future is uncertain then the bond market will be full of investor.  And as a result the bond market will have lower rates because they don’t have to entice investors to stay in the “tub.” As a result, (mortgage) interest rates will be low.

Both “refinance booms” were in down economic markets.  Beginning with 9-11 and now.  Remember, a bad economy is a GREAT for mortgage rates. This is why people refinance in bad markets and buy homes in good markets. The bond market is safe and secure and, therefore, has lower returns than the stock market.  However, with positive economic news (“unemployment is way down!” or “job growth has doubled!”) people will be willing to move out of the bond market’s “safety” and into the stock market’s colder, more rewarding environment.

 So how does this swimming pool, hot-tub analogy affect mortgage rates or refinance rates?  Well, when the market is moving away from the bond market –and into the stock market–(due to positive economic) news how does the BOND MARKET REACT TO THE LOSS OF CAPITAL?…HOW DOES THE BOND MARKET TRY TO KEEP PEOPLE IN THEIR HOT-TUB?

 They raise the yields or they raise the rates to keep people from jumping ship?  And in raising the yields of the bond market, they raise rates and in do so this raises mortgage rates. So positive news makes mortgage rates go up because the bond market is trying to raise yields to compete against the stock market’s lucrative returns.

 Whether you are buying or refinancing…want a NO PMI (80/15/5) or an (80/10/10), or perhaps you just want to do a Texas cash out refinance give us a call!

Dallas:  973-325-2120     Austin:  512-996-8194      Houston:  713-589-2244

 If you’d like more information regarding a Texas refinance or a home equity loan please call us at 512-996-8194

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