Home Loan Rates React to Worldwide News

It is not unusual for financial markets to fluctuate everyday as investments are constantly bought and sold. What has become unusual is the source that is actually causing the fluctuation. Bond markets, stocks markets, commodity markets and others are being moved by more than speculation. In fact, they are moving because of news that is coming out of Europe, China and other countries around the globe. In that mix, home loan rates, which are priced opposite the movement of mortgage backed securities, are also reacting to worldwide news.

Last week, we saw loan rates increase for the first time in quite awhile with most moving up at least .125%. For many months, the European debt crisis often ranked above any other financial reports causing markets to react strongly to this event. Loan rates remained historically low as investors sought the safety of government debt over risky stocks just in case Greece left the Euro or defaulted. Now that Greece has finally finished their crucial debt swap, investors feel more confident about moving to riskier assets such as stocks. With some improvement in the economy showing up in reports recently, even the Fed's Chief expressed a glimmer of optimism. This event and the lack of any decision of further quantitative easing, stocks were sent into a rally while prices for mortgage backed securities dropped, ultimately causing the increase to loan rates. It almost looked like a repeat scenario this week until news out of China indicated that they are facing a slowing economy. This and Bernanke's warning to Congress about the potential exposure that U.S. banks face in Europe will probably put a damper on any optimism which will keep home loan rates, including jumbo loan rates, at low levels.

With worldwide news about the global economy being reported instantly, anything can happen at any time. While these events will continue to create sudden changes in home loan rates, which will at times increase and at other times decrease, average loan rates should remain relatively low while the housing market continues to struggle along. Lenders, who have the ability to keep their mortgage rates down, will do so in order to maintain a full and active mortgage pipeline.