Interest rates this week improved slightly when the stock market took a dip. Below I have quoted our friends Jeff and Renee Kneller at Mountain Equity Mortgage.
Last week’s volatility in the stock market stabbed at the hearts of both the Stock and Bond markets, with home loan rates swinging higher and lower throughout the course of the week. Economic news releases took a backseat to the massive movements in Stocks. Amazingly, when all the smoke cleared, home loan rates were unchanged to slightly improved for the week overall.
What happened? First, remember that the Stock and Bond markets compete for the same investment dollar. This means that when Stocks are worsening and investors are selling off their holdings, some of that money gets moved over into the Bond market, which helps home loan rates improve. And vice versa, when Stocks move higher and investors are buying into the Stock market, some of that money comes back out of Bonds, which causes home loan rates to worsen.
Last week’s volatility began with the Chinese Stock market plunging, setting off a string of worldwide stock selling. Our own Stock market was ripe for a reversal lower, and money flowed out of Stocks and into Bonds, helping home loan rates improve. The next day, Stocks began to rebound, moving money back out of Bonds and causing home loan rates to worsen. But the “see-saw” action continued for the balance of the week – and may not be done yet, causing high amounts of volatility in Stocks and Bonds – and therefore, home loan rates.