San Diego Real Estate News – Bond Markets and Mortgages
How The Bond Market Affects Mortgages and the Housing Market
- Solving the Real Estate Puzzle
San Diego, CA – April 7, 2010
Today we’re going to look at the effect of the Bond Market on Mortgage interest rates. What you pay for the cost of money to buy your home actually impacts you more than the asking price of the home.
This week’s economic calendar may seem slow after the wave of economic news last week. But there are still some big items on tap, starting off right away Monday morning when the Pending Home Sales report gives us a look at the health of the housing industry.
Tuesday brings us the Meeting Minutes from the latest Fed Meeting. Although we already know what the Fed’s policy announcement was, the markets will be looking at the discussion contained in the Meeting Minutes as an indication of what Fed members are thinking and what they may do in the future.
On Thursday we’ll get another look at Initial Jobless Claims. Last week, Initial Jobless Claims were reported basically in line with expectations and down from the previous week’s number, and Continuing Jobless Claims declined as well. With those numbers and last week’s official Jobs Report in mind, the market will be watching to see if the labor market can continue to make positive strides.
Finally, in addition to those reports, the Treasury Department will auction off $82 Billion in Treasuries. And since most of those will be longer maturities that compete with Mortgage Backed Securities, the auctions could add volatility to the markets depending on how they are received.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Mortgage Bond prices plunged last week and rates increased .25%.
- How Bonds Affect Mortgages
Mortgage Rates and Bonds
You see, then, that when investors can put money into bonds and get a better yield, they begin to stop wanting to take on the increased risk of loaning money to people to buy a home. Home loans, as we all know, are riskier for banks and investors, and the way they overcome that risk is by raising rates. If they get a higher return, they are willing to take the higher risk.
With the bond market increasingly showing signs of following the improving economy, it is likely that this will put pressure on the banks to RAISE interest rates for home buyers.
Advice: If you’re in the market to buy, then now is absolutely the right time to begin to take advantage of the historically low interest rates. And if you’re a homeowner thinking to sell, please call me to talk about how selling now probably is the best decision you can make.
Related posts:
- San Diego Real Estate News – Where will homebuyers come from?
- San Diego Real Estate News – How Jobs Affect Housing Prices
Equal Housing Opportunity. Equal Opportunity Employer.
April 07, 2010 at 7:45 am, Real Estate News – April 7, 2010 said:
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