Stocks and mortgage rates mimic the economy

Although the stock market and mortgage rates are not directly related, they are both based on underlying trends in the economy. When things are going well, stock prices and mortgage rates rise. When the economy declines, both decline. When investors become concerned about national or global financial health, they move money into safer investments, such as bonds. Bonds are guaranteed by a government entity for payment and interest, while stocks are not pledged. The stock price could fall to zero, causing investors to suffer a total loss. As more investors move into bonds and out of riskier stock markets, demand for stocks falls and so do stock prices.

Mortgage rates are tied to bond prices

Mortgage rates are also closely tied to bonds, especially 10-year Treasury bonds. When investors are afraid to buy bonds, the increased demand for bonds causes their prices to rise and their yields to fall. The 10-year Treasury yield is the benchmark for most other consumer interest rates, including mortgage rates. When bond yields fall, so do mortgage rates, auto loan rates, credit card rates, and more. These may not go down right away, but consumer interest rates generally follow bond yields.

The mortgage itself is usually converted into a bond. Most mortgage lenders sell loans on the secondary market which are bundled together and converted into mortgage-backed securities. When there are a lot of mortgage bonds on the market, demand decreases and interest rates fall. If demand increases and there are fewer mortgage bonds available, interest rates will rise.

Mortgage rates are influenced by the Federal Reserve

The Federal Reserve’s mission is to keep inflation under control to stabilize the value of the dollar. If the Fed believes inflation has risen too much, it can raise its own federal funds rate and, in turn, other rates. Alternatively, mortgage rates could fall when inflation stagnates and the Fed lowers interest rates to stimulate economic activity.

Mortgage rates and the stock market are not correlated, but they do seem to have parallel movement patterns. This means that if the economy suffers a recession, you will lose money on your stock investments, but you will get a good deal on your mortgage loan. If the economy grows, you will face changes: your stock portfolio will grow, but it will cost you more to get a mortgage .

Instead of looking at the stock market to see what will happen to mortgage rates, we should be looking at the 10-year Treasury bond yield. More basic economic indicators such as unemployment, inflation and wage growth are also tracked.

It is a very interesting topic, we hope that this topic is clear to you. If you are interested in mortgages or housing investments, I invite you to visit the website where I share relevant information about housing in the world .