A Brief History of Mortgage Rates
Mortgage rates are heavily influenced by the secondary market where large mortgage investors, such as Fannie Mae or Freddie Mac, buy mortgage loans from brokers and lenders. Investors either hold the mortgages in their portfolio or combine the loans into mortgage backed securities.
The best mortgage rates typically happen when the economy slows, because investors speculate that the Federal Reserve will cut interest rates in the future to help the economy improve. During this period of higher demand, lenders can offer lower mortgage rates to consumers.
When economic news suggests that the economy is improving, investors speculate that the Federal Reserve will raise interest rates in the future to control economic growth and inflation. Lenders have to charge higher mortgage rates in order to sell their mortgages to investors.
Mortgage rates move in cycles according to the health of the economy. Reports that can provide an indication on which way rates may be headed: Consumer Price Index - One of the most important indicators of inflation. Higher inflation means higher rates, less inflation means lower mortgage rates.
Employment Cost Index - This index measures the rate of change in wages, salaries and benefits. It is important because rising labor costs can force businesses to raise prices to compensate.
Gross Domestic Product - Measures the nation's total economic output for a given 3-month period. When growth is too strong, it can cause demand for goods and services to exceed the supply, allows businesses to charge more. |
